Badge Constructions (SA) Pty Ltd v Rule Chambers Pty Ltd
[2007] SASC 417
•7 December 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
BADGE CONSTRUCTIONS (SA) PTY LTD v RULE CHAMBERS PTY LTD
[2007] SASC 417
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice White and The Honourable Justice David)
7 December 2007
INDUSTRIAL LAW - SOUTH AUSTRALIA - REGULATION OF PARTICULAR MATTERS UNDER PARTICULAR STATUTES - WORKMEN'S LIENS - ENTITLEMENT TO
INDUSTRIAL LAW - SOUTH AUSTRALIA - REGULATION OF PARTICULAR MATTERS UNDER PARTICULAR STATUTES - WORKMEN'S LIENS - ENFORCEMENT
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT - CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS - IMPLIED TERMS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK - REMEDIES FOR BREACH OF CONTRACT
Appeal by lienor from decision of master, directing Registrar-General of Lands to cancel worker’s lien registered over respondent’s (lienee) property – worker’s lien registered in circumstances of building dispute between appellant and respondent – written contract executed between appellant and respondent – contract provided for progress payments to appellant – Tie in Deed executed by appellant, respondent and respondent’s financier – tie in deed provided that appellant would not lodge any caveat over respondent’s property – appellant claimed that respondent breached contract by late processing of progress claims – appellant withdrew labour from building site – respondent treated withdrawal of labour as repudiation and terminated contract – appellant claimed termination was unlawful – appellant registered worker’s lien over respondent’s property for work done and materials supplied – appellant instituted proceeding to enforce lien – respondent applied to cancel lien pursuant to provisions of Worker’s Liens Act 1893 (SA) – section 32 of Worker’s Liens Act provides that any person prejudicially affected by lien, may apply to the court to have lien cancelled or modified – respondent claimed prejudicial affect – respondent claimed that appellant’s registration of worker’s lien breached provisions of tie in deed preventing lodging of caveat – section 12 of the Worker’s Liens Act provides that notice of lien shall be deemed to be a caveat – respondent claimed appellant had not satisfied requirements of section 5 of the Worker’s Liens Act – section 5 provides for registration of worker’s lien by a contractor or sub-contractor, in circumstances where contract price, or part thereof, has accrued due – appellant claimed that moneys claimed had accrued due pursuant to implied terms of contract – whether worker’s lien deemed to be a caveat – whether respondent prejudicially affected by worker’s lien – whether alleged implied terms form part of contract – whether contract price had accrued due – whether, in exercise of court’s discretion, lien should continue.
Held, dismissing the appeal:
(Per Gray J; David J concurring): Worker’s lien deemed to be a caveat under section 12 of Worker’s Liens Act – appellant acted in breach of obligations under tie in deed by registering worker’s lien – alleged implied terms not necessary to give contract business efficacy – alleged implied terms contradicted express terms of contract and intention of parties – moneys claimed not accrued due and payable under contract – discretionary considerations do not support continuance of lien – order of master directing Registrar-General of Lands to cancel worker’s lien sustained.
(Per White J): Claim for enforceable lien depends entirely on alleged implied terms of contract – appellant did not establish reasonable basis for lien – not reasonably arguable that contract contains alleged implied terms – alleged implied terms not reasonable or equitable – alleged implied terms not necessary to give contract business efficacy – whether the reference to a caveat in the Tie in Deed includes a notice of lien under section 12 of the Worker’s Liens Act is a question of construction according to the intention of the parties having regard to subject matter, content and relevant circumstances – determination of whether worker’s lien deemed to be a caveat under section 12 of Worker’s Liens Act is not necessary to dispose of appeal – evidence from respondent before master constituted material prejudice for the purpose of section 32 of the Worker’s Lien Act – master’s finding as to material prejudice correct.
Worker's Liens Act 1893 (SA) s 5, s 6, s 10, s 12 and s 32; Supreme Court Rules 1987 (SA); Supreme Court Civil Rules 2006 (SA) r 17(1) and r 292(3)(a); Real Property Act 1886 (SA), referred to.
Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270; Mikulic and Mikulic v Grosvenor Motors Pty Ltd (Unreported, Supreme Court of South Australia, Cox J, 11 September 1991); Hunter Douglas Australia Pty Ltd v Perma Blinds (1969) 122 CLR 49; Metropolitan Brick Company v Hayward [1938] SASR 462; Birchall Constructions Pty Ltd v Jape Nominees Pty Ltd (1982) 14 NTR 6; Albert Del Fabro Pty Ltd v Wilckens & Burnside Pty Ltd [1970] SASR 277; Albert Del Fabbro Pty Ltd v Wilckens & Burnside Pty Ltd [1971] SASR 121; Advanced Civil Engineering Pty Ltd v Wyara Pty Ltd [1986] NTJ 715; Leichhardt Development Co Ltd v Pipeline Properties Pty Ltd (1989) 97 FLR 148; W Curl & Sons Regd v Buck Industries Pty Ltd (1972) 2 SASR 335; Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 160 LSJS 288; Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (In Liq) (2006) 95 SASR 21; Woolworths (SA) Pty Ltd v Basetone Pty Ltd (2006) 95 SASR 174; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Daniels v Sabemo (SA) Pty Ltd (1986) 43 SASR 552; Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296; Byrne and Frew v Australian Airlines Limited (1995) 185 CLR 410; Foran v Wight (1989) 168 CLR 385; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1994) 180 CLR 266, considered.
WORDS AND PHRASES CONSIDERED/DEFINED
"payable", "accrued due"
BADGE CONSTRUCTIONS (SA) PTY LTD v RULE CHAMBERS PTY LTD
[2007] SASC 417Full Court Gray, White and David JJ
GRAY J.
This is an appeal from an order of a master directing the Registrar-General of Lands to remove a Notice of Lien, pursuant to the provisions of the Worker’s Liens Act 1893 (SA).
Factual Background
A dispute has arisen concerning a written building contract entered into on 29 July 2005. The parties to the contract were Badge Constructions (SA) Pty Ltd, the building contractor, plaintiff and appellant and Rule Chambers Pty Ltd, the building owner, defendant and respondent.
The contract provided for the refurbishment of a city building, with 73 strata title units to be constructed. It was intended that the units be completed and sold on an ongoing basis during the course of the contract.
The contract provided for progress payments. Badge Constructions was required to submit progress claims in accordance with a specified procedure provided by clause 37 of the contract. By clause 20 of the contract, Rule Chambers appointed MCD Australia Pty Ltd as its agent and Superintendent for the purpose of the contract. Each progress claim was subject to review by the Superintendent and, following that review, the provision of a certificate as to the amount of moneys then due pursuant to the contract. Rule Chambers was to pay the certified amount within seven days.
At about the same time as the contract was entered into, a building contract Tie in Deed was also executed. The parties to the Tie in Deed were Rule Chambers, Badge Constructions, and Rule Chambers’ project financier, Investec Bank (Australia) Ltd. The purpose of the Tie in Deed was to tie the financier’s requirements to the building contract. The terms of the Tie in Deed are relevant to the dispute between the parties and will be referred to later in these reasons.
While the contract was “on foot”, Badge Constructions proceeded to undertake building work and submit progress claims. Those claims were subject to the earlier referred to review and certification process. Rule Chambers paid each progress claim, once certified by the Superintendent, in accordance with the written terms of the contract.
The circumstances of the dispute were as follows. Badge Constructions claimed that the Superintendent was late in processing claims. This, it was said, led to a breach of contract by Rule Chambers. As a result, Badge Constructions withdrew labour from the building site. Rule Chambers treated the withdrawal of labour as a repudiation of the contract, purported to accept the repudiation, and terminated the agreement. Badge Constructions claimed that this purported termination was unlawful. Both parties agreed that the contract was at an end, but each claimed that the other had breached the contract.
The Contractual Provisions
It is necessary to set out certain of the contractual provisions before discussing the procedural history of the dispute and the issues raised on the appeal.
Clause 37 outlined the requirement for progress payments and relevantly provided:
Payment
37.1 Progress claims
[Badge Constructions] shall claim payment progressively in accordance with Item 28.
An early progress claim shall be deemed to have been made on the date for making that claim.
If the time for a payment claim falls on a day which is not a working day, [Badge Constructions] shall submit the claim on either the working day before that date or the next working day.
Each progress claim shall be given in writing to the Superintendent and shall include details of the value of WUC [work under the Contract] done and may include details of other moneys then due to [Badge Constructions] pursuant to provisions of the Contract.
The Superintendent may request further information from [Badge Constructions] in respect of any progress claim. [Badge Constructions] must provide the information requested to the Superintendent within the time and in the form requested by the Superintendent before the Superintendent is required to assess any progress claim.
37.2 Certificates
The Superintendent shall, within 10 working days after receiving such a progress claim or any further information requested by the Superintendent under clause 37.1, whichever is the later, issue to [Rule Chambers] and [Badge Constructions]:
a)a progress certificate evidencing the Superintendent’s opinions of the moneys due from [Rule Chambers] to [Badge Constructions] pursuant to the progress claim and reasons for any difference (‘progress certificate’); and
b)a certificate evidencing the Superintendent’s assessment of moneys due from [Badge Constructions] to [Rule Chambers] pursuant to the Contract.
If [Badge Constructions] does not make a progress claim in accordance with Item 28, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
...
[Rule Chambers] shall within 7 days after receiving both such certificates, or within 21 days after the Superintendent receives the progress claim, pay to [Badge Constructions] the balance of the progress certificate after setting off such of the certificate in the first paragraph (b) as [Rule Chambers] elects to set off or setting off any other amounts in accordance with the Contract. If that setting off produces a negative balance, [Badge Constructions] shall pay that balance to [Rule Chambers] within 7 days of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC [work under the Contract] has been carried out satisfactorily. Payment other than final payment shall be payment on account only.
...
37.4 Final payment claim and certificate
Within 28 days after the expiry of the last defects liability period, [Badge Constructions] shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract.
If the time for a final payment claim falls on a day which is not a working day, [Badge Constructions] shall submit the claim on either the working day before that date or the next working day.
...
Within 42 days after the expiry of the last defects liability period, the Superintendent shall issue to both [Badge Constructions] and [Rule Chambers] a final certificate evidencing the moneys finally due and payable between [Badge Constructions] and [Rule Chambers] on any account whatsoever in connection with the subject matter of the Contract.
Those moneys certified as due and payable shall be paid by [Rule Chambers] or [Badge Constructions], as the case may be, within 7 days after the debtor receives the final certificate.
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract except for:
a)fraud or dishonesty relating to WUC [work under the Contract] or any part thereof or to any matter dealt with in the final certificate;
b)any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
c)any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in any computation; and
d)unresolved issues the subject of any notice of dispute pursuant to clause 42, served before the 7th day after the issue of the final certificate.
Clause 39 addressed default or insolvency and relevantly provided:
Default or insolvency
39.1 Preservation of other rights
If a party breaches (including repudiates) the Contract, nothing in this clause shall prejudice the right of the other party to recover damages or exercise any other right or remedy.
39.2 [Badge Constructions’] default
If [Badge Constructions] commits a substantial breach of the Contract, [Rule Chambers] may, by hand or by certified post, give [Badge Constructions] a written notice to show cause.
Substantial breaches include, but are not limited to:
...
b) wrongful suspension of work;
c)substantial departure from a construction program without reasonable cause or the Superintendent’s approval;
…
39.4 [Rule Chambers’] rights
If the Contractor fails to show reasonable cause by the stated date and time, [Rule Chambers] may by written notice to [Badge Constructions]:
a)take out of [Badge Constructions’] hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or
b)terminate the Contract.
...
39.7 [Rule Chambers’] default
If [Rule Chambers] commits a substantial breach of the Contract, [Badge Constructions] may, by hand or by certified post, give [Rule Chambers] a written notice to show cause.
...
39.9 [Badge Constructions’] rights
If [Rule Chambers] fails to show reasonable cause by the stated date and time, [Badge Constructions] may, by written notice to [Rule Chambers], suspend the whole or any part of the WUC [work under the Contract].
[Badge Constructions] shall remove the suspension if [Rule Chambers] remedies the breach.
[Badge Constructions] may, by written notice to [Rule Chambers], terminate the Contract, if within 28 days of the date of suspension under this subclause, [Rule Chambers] fails:
a)to remedy the breach; or
b)if the breach is not capable of remedy, to make other arrangements to the reasonable satisfaction of [Badge Constructions].
Damages suffered by [Badge Constructions] by reason of the suspension shall be assessed by the Superintendent, who shall certify them as moneys due and payable to [Badge Constructions].
39.10 Termination
If the Contract is terminated pursuant to subclause 39.4(b) or 39.9, the parties’ remedies, rights and liabilities shall be the same as they would have been under the law governing the Contract had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages.
Procedural History
On 16 March 2007, Badge Constructions registered a worker’s lien against a number of the strata title units owned by Rule Chambers to secure the sum of $613,016.79. The details of the claim in support of the lien were in the following terms:[1]
The Lienor claims a lien on the estate or interest of the Lienee in the land above described
The amount claimed by the Lienor is [$613,016.79] for work done and materials supplied due in connection with work done to the said land with the consent of the Lienee. An action will be brought in the Supreme Court of South Australia to enforce the Lien.
Apparently in accordance with Lands Titles Office practice, the lien was registered over all titles relevant to the building site and the strata titles. Each particular title, however, was only subject to the lien to the extent of the value of the work said to have been performed, but not paid, relating to that particular strata title.
[1] The details originally stated the amount claimed to be $635,428.61. That figure has been crossed out by hand and the figure of $613,016.79 has been handwritten. Neither party suggested that this was of any importance.
On 19 March 2007, Rule Chambers received written notice of the lien dated 16 March 2007.
On 30 March 2007, Badge Constructions issued the within proceedings by summons to enforce the lien, claiming, it was said, liquidated amounts totalling $1,422,123.53 which included the amounts secured by the lien. The summons also included a claim for damages for breach of contract. Annexed to the summons was a statement of claim in support of the claims.
On 3 May 2007, Rule Chambers applied for cancellation of the lien. Section 32 of the Worker’s Liens Act provides for the cancellation of a lien in circumstances where a person is prejudicially affected by the lien. It relevantly provides:
Any person alleging that he is prejudicially affected by a claim, lien, or charge, or by registration under this Act, may at any time apply to the court to have such claim or registration cancelled or the effect thereof modified, and such order may be made as may be deemed just.
Following receipt of this application, on 21 May 2007, Badge Constructions filed an amended statement of claim. On 1 June 2007, Badge Constructions applied for leave to further amend its statement of claim. This amendment was subsequently allowed by a master, by order dated 3 August 2007, and when made, pleaded, inter alia, the following implied terms of the building contract:
6AIt was an implied term of the contract that:-
6A.1in the event that the Superintendent fails to issue any certificate in respect of a progress claim that the amount of the claim would be due and payable by [Rule Chambers] within 21 days after the Superintendent receives the progress claim;[2]
[2] Paragraph 6A.1 was subsequently deleted from the pleadings.
6A.2in the event that [Rule Chambers] wrongfully terminated the Contract, any progress claim which had not been the subject of a certificate by the Superintendent would be due and payable by [Rule Chambers] within 21 days of that wrongful termination;
6A.3in the event that [Rule Chambers] wrongfully terminated the Contract, any work which [Badge Constructions] had carried out since its last progress claim, and which would have been the subject of a progress claim in the future, would be due and payable by [Rule Chambers] within 21 days of that wrongful termination; and
6A.4in the event that [Rule Chambers] wrongfully terminated the contract, [Rule Chambers] would forthwith return any security provided pursuant to clause 5 of the contract.
6BThe terms were implied as a matter of law. In the alternative each of the terms were implied because each of them:-
6B.1is reasonable and equitable;
6B.2is necessary to give business efficacy to the contract;
6B.3is so obvious that it goes without saying;
6B.4is capable of being clearly expressed; and
6B.5does not contradict any express terms of the contract.
6CAs to the allegation in 6B.1, the implied terms pleaded in 6A.2 and 6A.3 are reasonable and equitable because:-
6C.1at no time up to or including the execution of the Contract did the parties discuss what would occur in respect of a final payment as contemplated by clause 37.4 of the Contract or the return of bank guarantees in the event that [Rule Chambers] wrongfully terminated the Contract;
6C.2at no time up to or including the execution of the Contract did the parties discuss clause 39 of the Contract;
6C.3the Contract required the appointment by [Rule Chambers] of a Superintendent “at all times” (clause 20);
6C.4the Contract required the Superintendent in fulfilling any certification role to act honestly and fairly and obliged [Rule Chambers] to ensure that the Superintendent did so (clause 20);
6C.5as a matter of law the Superintendent owed a duty to [Badge Constructions] as a fiduciary in respect of the certifications made under the Contract;
6C.6the Contract works were to be carried out for the Contract Sum;
6C.7the Contract works were to be carried out over a period of approximately 10 months subject to any extensions of time;
6C.8the Contract provided in clause 36 for the Superintendent to direct that [Badge Constructions] carry out additional works outside the scope of the Contract works (“variations”) and the Contract provided in clause 20 that [Badge Constructions] was to follow the directions of the Superintendent;
6C.9the Contract provided in clause 36.4 that the Superintendent would price each variation as soon as possible and that the price shall be added or deducted from the Contract Sum;
6C.10the Contract provided in clause 37 for the submissions of progress claims on a monthly basis;
6C.11the Contract provided in clause 37 for the certification and payment for progress claims (or certified parts thereof) on account;
6C.12the Contract provided in clause 37.4 for a final accounting between the parties and the certification and payment of a final payment;
6C.13the Contract provided in clause 39 for a contractual procedure to be followed where it was asserted that [Badge Constructions] was in default; and
6C.14the Contract provided in clause 39 for a contractual procedure to be followed where [Rule Chambers] wished to terminate the Contract.
6DAs to the allegation in 6B.1, the implied term pleaded in 6A.4 is reasonable and equitable because:-
6D.1of the matters pleaded in 6C.1 to 6C.5 and 6C.12 to 6C.14;
6D.2the Contract provided in clause 5.1 for the provision of security by [Badge Constructions] of an unconditional bank undertaking or guarantee equal to 5% of the Contract Sum and the parties agreed to the provision of two bank guarantees each for 2.5% of the Contract Sum;
6D.3the Contract provided that [Badge Constructions] would, subject to clause 39, be permitted to bring the Contract works to a stage of practical completion;
6D.4the Contract provided in clause 34.6 that the Superintendent should issue a certificate of practical completion when practical completion had been reached;
6D.5the Contract provided in clause 5.4 that upon practical completion being certified 50% of the security provided by [Badge Constructions] under clause 5.1 would be returned to [Badge Constructions]; and
6D.6the Contract provided in clause 5.4 that 14 days after the final certificate was issued by the Superintendent under clause 37.4 that [Rule Chambers] shall return any security to [Badge Constructions].
6EAs to the allegation in 6B.2, the implied terms pleaded in 6A.2 and 6A.3 are necessary to give business efficacy to the Contract because the Contract fails to make provision for the payment of amounts which would otherwise have been the subject of certification by the Superintendent but for the wrongful termination of the Contract.
6FAs to the allegation in 6B.2, the implied term pleaded in 6A.4 is necessary to give business efficacy to the Contract because the wrongful termination of the Contract means that there is no contractual process by which [Badge Constructions] is entitled to the return of its security.
6GAs to the allegation in 6B.3 the implied terms pleaded in 6A.2 and 6A.3 are so obvious that they go without saying because the parties expected and were entitled to expect that [Badge Constructions] would be paid under the Contract for the Contract works by the end of the Contract.
6HAs to the allegation in 6B.3 the implied term pleaded in 6A.4 is so obvious that it goes without saying because the parties expected and were entitled to expect that [Badge Constructions] would have returned by [Rule Chambers] to it, the security it provided under the Contract by the end of the Contract.
Rule Chambers’ application to cancel the lien was heard by a master on 4 June 2007. The application was argued on the basis that the proposed further amendment to the statement of claim would be allowed. The application was based on two arguments. It was submitted that Badge Constructions was not entitled to the lien as the requirements of the Worker’s Liens Act had not been satisfied. Section 5 of the Act provides for the issuing of a worker’s lien by a contractor or sub-contractor. To qualify under this section, the contractor or sub-contractor must establish that the contract price is accrued due. Section 5 provides:
A contractor or sub-contractor shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:
(a)Where the work is done, with the assent, express or implied, of the owner or occupier to the land or to any fixture thereon:
(b)Where the materials are, with the assent, express or implied, of the owner or occupier, used or intended to be used in or about work done, or intended to be done, to the land or to any fixture thereon.
Rule Chambers submitted that no portion of the contract price was due and unpaid, as at the date of the receipt of the written notices of demand for payment, nor at the time of registration of the lien.
It was further submitted that Rule Chambers was prejudicially affected by the lien such that it should be removed in the interests of justice. Reliance was placed on the following unchallenged affidavit evidence:
[Badge Constructions] cannot give clear title on any units that have already been sold, but not settled, because it would have to pay the full amount of the lien to enable any one of the units to be released from the lien. The average sale price per living unit is $250,000.00 or thereabouts;
[Rule Chambers] is prejudiced in that it is now constrained in terms of selling unsold residential units, placing them on the market, and agreeing a settlement date, as [Rule Chambers] cannot now be certain that it will be able to give a clear title to a purchaser on settlement dates.
[Rule Chambers] has no materials from [Badge Constructions] to substantiate the sums referred to in the notices of demand, and thus is not able to give due consideration to the claims.
[Badge Constructions] has no entitlement to a lien pursuant to Section 5 of the Worker’s Liens Act 1893 (SA).
[Rule Chambers] wishes to immediately refinance its existing loans, for commercial reasons, but is effectively prevented from doing so for so long as the lien remains on the titles.
On 28 June 2007, Badge Constructions’ application of 1 June 2007 for leave to file a further amended statement of claim was heard by a master. Judgment was reserved.
On 10 July 2007, the Master delivered his reserved decision concerning the application to remove the lien. The Master allowed the application and in the course of his reasons made the following observations:
[Rule Chambers’] application in respect of the liens is made pursuant to the provisions of s 32 of the Worker’s Liens Act 1893 (as amended). Section 32 provides as follows:
32 – Claim or registration may be cancelled
Any person alleging that he is prejudicially affected by a claim, lien, or charge, or by registration under this Act, may at any time apply to the court to have such claim or registration cancelled or the effect thereof modified, and such order may be made as may be deemed just.
To enliven this section [Rule Chambers] must allege that it is prejudicially affected by the liens. Allegations are made in this matter that the liens clog [Rule Chambers’] titles, they are an impediment to obtaining alternative finance, and their very presence on the titles is prejudicial to [Rule Chambers]. [Badge Constructions] asserts that it is prepared for the liens to be discharged to accommodate the sale of any affected unit provided that the monies allegedly due on that unit which are protected by the lien are paid into Court. Thus [Rule Chambers] suffers prejudice.
In arguing this aspect of the matter [Rule Chambers] relied on the comments of Mullighan J, who was the Judge at first instance, in the Longreef case (1990) 159 LSJS 414 at p 417, where his Honour noted:
The plaintiff contends that it is prejudicially effected [sic] as the title is “clogged” by the lien and consequently it is fettered in its dealing with the property including from obtaining further advances on the mortgage, in the gaining of leasehold interest to prospective tenants and it is prevented from selling the property unless the net proceeds of sale are at least the amount secured by existing mortgages and the amount of the lien. The defendant contends that there is no such prejudice and it has offered to consent to registration of leases and to any lease taking priority over the lien.
In that particular matter his Honour found at p 423:
… I think the plaintiff has demonstrated that is prejudicially affected by the lien and its registration for the reasons advanced.
That finding was not challenged on the appeal to the Full Court. In my view the circumstances here are remarkably similar and for the same reasons I find that [Rule Chambers] has established that it is prejudicially affected by the liens and that therefore the discretion of the Court in s 32 of the Worker’s Liens Act is enlivened.
…
In my view on the written Contract [Rule Chambers] is correct in asserting that there are no monies that would fall within the category of accrued due under that Contract and which are presently payable to [Badge Constructions]. [Badge Constructions] asserts that the Contract does not provide for a situation where it is wrongly terminated by the principal with monies still payable for work already completed. But that does not seem to me to be the case because the Contract does provide in Clause 30, and in particular Clauses 39.4, 39.9 and 39.10, for what is to occur in the event of a termination. Those provisions are essentially that a party who wrongfully suffers loss as a result of such a termination is entitled to be compensated for that loss by way of damages.
... Whether or not a Court will find that there was an implied term in the Contract is a matter for trial and that cannot be determined on this application. However, what can be determined on this application is that under the written Contract existing between the parties there are no monies that fall within the category of accrued due.
In my view, that finding is determinative of this matter. Applying the approach of the Court explained by King CJ in the Longreef case, [Badge Constructions] has not met the requirements necessary to bring into existence a lien as there are under the written Contract no monies accrued due and therefore no monies presently payable.
The Master adjourned the matter to 16 July 2007 for mention, to hear the parties as to costs and as to the formal terms of the order. On 16 July 2007, the Master made orders in respect of his decision, including:
-that the lien be cancelled;
-that a stay of such orders be granted pending determination of a foreshadowed appeal by Badge Constructions; and
-that the appeal be expedited.
On 17 July 2007, Badge Constructions appealed against the Master’s decision cancelling the lien. By its notice of appeal, it was contended that the Master erred in finding that Rule Chambers had established that it was prejudicially affected by Badge Constructions’ lien, and that the Master should have found that Rule Chambers had failed to advance any cogent evidence of prejudicial effect. It was contended that the Master erred in his application of the decision of this Court in Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd[3], and that the Master ought to have distinguished that decision from the present case. It was further contended that the Master erred in limiting his consideration to the written terms of the contract and failing to consider the effect of implied terms. Finally, it was contended that the Master erred in finding that clause 39 of the contract operated as a contractual code which covered the consequences of Rule Chambers’ alleged repudiation. It was said that the Master ought to have limited the operation of clause 39 to the termination of the contract by the procedures set down in the contract.
[3] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270.
On 27 July 2007, the appeal came before a Judge of this Court. With the consent of the parties, the appeal was referred to the Full Court for hearing. In the course of submissions counsel for Badge Constructions made reference to the decision of this Court in Mikulic and Mikulic v Grosvenor Motors Pty Ltd.[4] In that decision Cox J held that under the Supreme Court Rules 1987 (SA), an order removing a worker’s lien was a final order, even though it was made without finalising the action. It should be noted that pursuant to Rule 17(1) of the Supreme Court Civil Rules 2006 (SA), which apply to these proceedings, an appeal lies, as of right, from a final judgment of a master to the Full Court.
[4] Mikulic and Mikulic v Grosvenor Motors Pty Ltd (Unreported, Supreme Court of South Australia, Cox J, 11 September 1991).
On 1 August 2007, Rule Chambers filed an interlocutory application pursuant to Rule 292(3)(a) of the Supreme Court Civil Rules, together with a supporting affidavit. The application sought leave to adduce evidence at the hearing of the Full Court appeal of the earlier referred to Tie in Deed. Rule 292(3)(a) provides as follows:
Subject to any limitation on its powers arising apart from these rules, the Court may—
(a)draw inferences of fact from evidence taken at the original hearing and, in its discretion, hear further evidence on a question of fact
On 3 August 2007 the Master delivered his reserved decision concerning Badge Constructions’ application for leave to further amend the statement of claim. The Master granted leave and directed that the amended statement of claim be filed within seven days.
The appeal was heard by the Full Court on 9 August 2007 and 16 August 2007. At the hearing on 9 August 2007, Badge Constructions was directed to file the further amended statement of claim and further affidavit evidence in support of the application to adduce evidence of the Tie in Deed.
In accordance with these directions, the further amended statement of claim was filed on 10 August 2007 and an affidavit from a director of Rule Chambers was filed on 13 August 2007. This affidavit annexed an executed, but undated. copy of the Tie in Deed and deposed to Rule Chambers having executed the deed at the request of Investec Bank.
At the Full Court hearing on 16 August 2007, counsel for Badge Constructions accepted that no relevant prejudice arose from the receipt of the further evidence that could not be resolved by an appropriate cost order. The Court’s decision was reserved.
The Appeal
Jurisdiction
Badge Constructions submitted that Rule Chambers had failed to establish that it was prejudicially affected by the lien being on the land titles and, as such, this Court’s jurisdiction under section 32 of the Worker’s Liens Act to discharge or modify the lien had not been enlivened.
On appeal, as at first instance, reliance was placed by Rule Chambers on the same unchallenged affidavit evidence when addressing the question of prejudice. It was submitted that Rule Chambers had, in effect, a third mortgage on the titles, securing $613,016.79. As a consequence, to clear the titles and refinance the property would require Rule Chambers to pay $613,016.79 to Badge Constructions or the Registrar-General’s Lien Fund.
It was submitted that no further advances would be made by existing financiers as they would not retain their contractual priority over what was, in effect, a subsequent charge – the lien.
It is self-evident that a lien on the titles would prejudice the commercial interests of Rule Chambers, in that it may be an impediment to a transfer of title of completed strata units and to any attempt to refinance the project. These matters are further evidenced by the terms of the Tie in Deed. The Master was correct to conclude that the Court’s jurisdiction had been enlivened.
The Tie in Deed
Rule Chambers drew attention to the terms of the Tie in Deed and, in particular, a term whereby Badge Constructions agreed not to place a caveat on Rule Chambers’ titles.
It is convenient to first address the terms of the Tie in Deed. The deed provided, inter alia:
BACKGROUND
AThe Financier has made or intends to make certain financial accommodation available to or at the request of [Rule Chambers] in connection with the Building Contract (Facilities).
B[Badge Constructions] has entered into the Building Contract with [Rule Chambers].
C[Rule Chambers] has charged or intends to charge its interest in the Building Contract to the Financier.
DThe parties have agreed to enter this document to regulate the rights between themselves.
…
CONSENT AND COVENANTS
Consent
(a)[Badge Constructions] consents to:
(i)[Rule Chambers] charging the Building Contract to the Financier, and
(ii)the exercise by the Financier of any right under its securities.
(b)[Badge Constructions] agrees:
(i) not to hinder the Financier in its exercise of any right under its securities; and
(ii) that it will not lodge any caveat over the Property.
It is to be observed that the legislature has deemed a notice of lien to be a caveat and has directed that provisions of the Real Property Act 1886 (SA) relating to caveats, so far as applicable and so far as consistent with the Worker’s Liens Act, apply to the lien.
Section 12 of the Worker’s Liens Act provides:
A notice lodged in respect of land under the provisions of the Real Property Act shall be deemed to be a caveat forbidding the registration of any dealing with the estate or interest sought to be affected by the lien, unless such dealing shall be expressed to be subject to the claim of the person lodging the notice, and the provisions of the Real Property Act relating to caveats shall, so far as applicable and so far as consistent with this Act, apply to every such notice.
A deeming provision of this nature does not necessarily involve the creation of a statutory fiction. In Hunter Douglas Australia Pty Ltd v Perma Blinds,[5] Windeyer J provided the following apposite analysis:
It is a recognition that the verb “deem”, or derivatives of it, can be used in statutory definitions to extend the denotation of the defined term to things it would not in ordinary parlance denote. This is often a convenient device for reducing the verbiage of an enactment. But that the word can be used in that way and for that purpose does not mean that whenever it is used it has that effect. After all, to deem means simply to judge or reach a conclusion about something. A judge, or a juryman, is a deemster, although, except in the Isle of Man, that name has long been archaic. The words “deem” and “deemed” when used in a statute thus simply state the effect or meaning which some matter or thing has—the way in which it is to be adjudged. This need not import artificiality or fiction.
[emphasis added]
The clear intent of the Tie in Deed was to preclude the encumbering of the title.
[5] Hunter Douglas Australia Pty Ltd v Perma Blinds (1969) 122 CLR 49 at 65.
Badge Constructions submitted that, as a matter of construction, the Tie in Deed did not preclude the lodging of a worker’s lien. The Tie in Deed is expressed to be subject to the laws of Victoria. In that State there is no comparable legislation to the South Australian Worker’s Liens Act.
It was contended that a lien was not a caveat and was certainly not a caveat as a matter of Victorian law.
Although the Tie in Deed is subject to the law of Victoria, it may be concluded that a court, when dealing with building work in South Australia, would give effect to the South Australian legislation in any action under, or affecting, the Tie in Deed. As a lien is deemed by law to be a caveat there is no reason for a court to treat a lien otherwise. In substance, a worker’s lien operates in a relevantly identical way to a caveat and an application to remove a lien is directly comparable to an application to remove a caveat. In my view the submission of Badge Constructions should be rejected.
The Tie in Deed further provided:
[Badge Constructions] perform obligations
[Badge Constructions] agrees with the Financier that [Badge Constructions] will:
(a) duly and punctually observe its obligations under the Building Contract for the benefit of [Rule Chambers] and the Financier;
(b) effect and maintain in force such policies of insurance as are required under the Building Contract; and
(c) notify the Financier promptly of any material default by [Rule Chambers] under the Building Contract.
If [Badge Constructions] is making a progress claim that [Rule Chambers] will be requesting the Financier to fund under the Facilities, [Badge Constructions]must provide with its claim evidence by statutory declaration (to the satisfaction of the Financier and its quantity surveyor) that all subcontractors, consultants, suppliers or employees as may be the case, who were to have been paid under any previous claim have been paid. The provisions of this evidence may not be the only precondition for funding. [Rule Chambers] agrees to provide such evidence with its request for any drawdown under the Facilities.
[emphasis added]
This clause further evidences that Badge Constructions agreed with Rule Chambers and the financier that steps would be taken to ensure that no caveat or other claim by third parties would encumber the land titles.
The parties concluded a bargain that included the entry into a Tie in Deed. The financier of Rule Chambers was a party to that deed. The purpose of the deed was primarily to protect the position of the financier. As earlier observed, Badge Constructions agreed not to enter a caveat on the relevant titles. By registering the lien, Badge Constructions has lodged a document that is, by the terms of section 12 of the Worker’s Liens Act, deemed to be a caveat. Badge Constructions, by registering the lien, acted in breach of its obligations under the Tie in Deed. This provides a clear prima facie basis for directing the removal of the lien from all relevant titles.
The above considerations flowing from the Tie in Deed would appear to resolve this appeal. Badge Constructions contracted not to lodge a caveat. A worker’s lien is deemed by law to be a caveat.
However, as the other issues on the appeal were fully argued, it is appropriate that I express my views on those matters as well.
Had Moneys Claimed Accrued Due?
On appeal, Badge Constructions accepted that the only moneys accrued due under the written terms of the contract were moneys certified to be paid by the Superintendent. Progress claims had been submitted. All claims certified for payment by the Superintendent had been paid. It was further accepted that under the written contractual terms, all moneys accrued due had been paid.
As a consequence, it was conceded by Badge Constructions that the worker’s lien could only be supported by the alleged implied contractual terms pleaded in the further amended statement of claim.
As earlier observed, section 5 of the Worker’s Liens Act provides for the issuing of a lien by a contractor or sub-contractor. To qualify under this section, the contractor or sub-contractor must establish that the contract price has accrued due. In Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd,[6] King CJ discussed the timing of the accrual of the contract price and relevantly observed:
The contract price or part thereof accrues due when the right of the contractor or sub-contractor to the contract price or part thereof arises under the terms of the contract under which the work was done or the materials supplied. The contract under which he performs the work or supplies the materials is the source of the entitlement of the contractor or sub-contractor. The apparent distinction made in the statute between “due” and “payable” seems to imply that the price or part thereof may accrue due although the time for payment has not yet accrued, but an amount can only be said to have accrued due when work has been done and materials supplied and all other pre-conditions of entitlement stipulated by the contract have been satisfied. There must be a present debt even though under the terms of the contract the time for payment may not have arrived.
[6] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270 at 272.
Section 6 of the Worker’s Liens Act concerns the legitimate scope of a lien and provides:
Liens under subsection (1) of section 4 or under section 5 shall not, in cases other than those of workers employed by the owner or occupier, extend beyond that portion of the contract price payable by the owner or occupier under the contract for the purposes of which the work or materials are done, furnished, or manufactured and unpaid at the time when the owner or occupier shall receive notice of the lien or of its registration, whichever shall first happen, nor extend at all to cases where there is no such contract binding the owner or occupier to pay a contract price.
King CJ discussed the meaning and application of this provision and made the following comment:[7]
[Section 6] does not create the right of lien but limits the extent of the lien which is created by section 4 and which arises when an amount has accrued due within the meaning of section 5. The effect of section 6 is to limit the extent of a lien which has arisen because an amount has accrued due within the meaning of section 5, to the portion of the contract price payable by the owner or occupier which is unpaid at the time of notice or registration. Where the work has been done or materials supplied under a contract with the owner or occupier, the lien arises when an amount has accrued due under that contract. Where the work has been done or materials supplied by a sub-contractor the lien arises when an amount has accrued due to the subcontractor by the head contractor under the terms of the sub-contract. The lien is limited by section 6 to the amount which the owner or occupier is liable to pay under the head contract; Metropolitan Brick Company v Hayward and Another [1938] SASR 462 per Napier J at 466.
[7] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270 at 273.
Section 10 of the Worker’s Liens Act concerns the procedural requirements for registration and provides:
(1)A lien under this Act with regard to land shall be available only if registered before the expiration of twenty-eight days after the wages or contract price in respect of which such lien has arisen shall for the purposes of this section have become due.
(2)Any wages or contract price shall for the purposes of this section be deemed to have become due-
(a) if unpaid for seven days after the same (being payable) shall have been demanded by notice in writing, signed by the person claiming the same and given to the person liable to pay the same, or posted in a registered letter addressed to him at his usual or last known place of abode in South Australia:
(b) if either before or after the same shall have become payable, the person liable to pay the same shall have called a meeting of his creditors, or committed an act of bankruptcy, or executed a deed of assignment within the meaning of the Bankruptcy Act 1924 of the Commonwealth, or shall have taken or attempted to take the benefit of any law relating to bankrupts or insolvent debtors, or shall have suffered his goods to be taken in execution or seized under legal process or distress for rent.
…
With respect to this section, King CJ in Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd observed:[8]
... The notice under section 10(2)(a) cannot be given until the amount claimed is payable. An amount is payable only when it must be paid, that is to say when it is due under the contract and the time for payment has arrived. An amount which is not due at the date of the notice or is not payable until a future date is not payable at the date of the notice. To say that an amount is payable in the future is simply to say, elliptically, that it is not yet payable but will or might become so in the future; Metropolitan Brick Company v. Hayward and Another supra per Napier J. at 466. It follows that the concept of becoming due for the purpose of section 10 is a different concept from that of accruing due under section 5; Albert Del Fabro Pty Ltd v. Wilckens & Burnside Pty Ltd (Receiver and Manager Appointed) and Arndale (Marion) Pty Ltd [1970] SASR 277 at 284. It also follows that a contract price or part thereof cannot “become due” under section 10 until it has first “accrued due” under section 5. I cannot subscribe to the view that a notice under section 10 can alter the contractual relations of the parties to the extent that a party becomes liable, by force of the notice, to pay an amount which he is not at the time liable to pay under the terms of the contract. There is nothing in the statutory provisions to suggest that so drastic an interference with contractual rights and liabilities was intended.
[8] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270 at 275-276.
Badge Constructions accepted that the issue on appeal was whether the Master was correct in concluding that it was not entitled to a lien because no sum had accrued due and was unpaid under the building contract, within the meaning of section 5 of the Worker’s Liens Act. It was submitted that the effect of the Master’s ruling was to summarily dismiss Badge Constructions’ claim that the sum had accrued due. It was further contended that the Master had, in effect, wrongly concluded that clause 39 of the contract provided a code which covered the consequences of termination and repudiation. It was contended that the Master erred in so deciding, only having had regard to the written terms of the contract and, in effect, had ignored the alleged implied terms.
Rule Chambers submitted that the orders of the Master were entirely appropriate. It was pointed out that all payments certified by the Superintendent, pursuant to the contract, had been paid. It was submitted that no moneys were due and owing by Rule Chambers to Badge Constructions pursuant to the contract. It was contended that to be entitled to a lien under section 5 of the Worker’s Liens Act, Badge Constructions had to establish that the moneys claimed had accrued due.
Particular attention was drawn to the terms of sections 5 and 6 of the Worker’s Liens Act. It was argued that no portion of the contract price was due and unpaid at the date of the receipt of the Notice of Lien, or at the time of the registration of the lien. In these circumstances, it was said that an entitlement to lodge a lien simply did not arise.
The sections under contention in these proceedings were the subject of detailed analysis by Napier J in Metropolitan Brick Co v Hayward.[9] The plaintiff in that case supplied bricks to a builder who had agreed to build a house for the defendants on their land. The contract price was to be paid to the builder on certain conditions which, as in the present case, involved the making of progress claims and the issuing of progress certificates.
[9] Metropolitan Brick Co v Hayward [1938] SASR 462.
Napier J directed attention to the meaning of the word “payable” in section 6 of the Worker’s Liens Act. He noted that the plaintiffs contended that the section referred to the sum stated in the contract as the consideration for the completed work, without regard to its being earned or not. It was his view that this was “an impossible construction”. His Honour observed:[10]
The first question argued was the meaning of “payable” in this context. ...
... The natural sense of “payable” is “that must be paid”, and money is not “payable under” a contract until the contract binds the party to pay it, i.e. until the conditions precedent have been satisfied or excused (Sumpter v Hedges [1898] 1 QB 673). There is a sense in which it can be said that money is “due” or owing before it becomes payable – debitum in praesenti, solvendum in futuro – but it is difficult to see how the converse can be true. When we speak of money as due or payable in the future, or upon the happening of an event, we are using an ellipsis. The full sense is money which will become payable, or may become payable, but the latter is a secondary meaning, and is not to be assumed. It requires a context to support it, and I can see nothing in the context which justifies any departure from the literal meaning. I cannot agree with Mr Ligertwood’s argument upon the juxtaposition of “payable … and unpaid”. I think that the explanation of these words is that they refer to two distinct limitations of the lien. The security is for a sum which cannot exceed the amount which (1) is or becomes due from time to time, and (2) was unpaid when the owner received notice.
[10] Metropolitan Brick Co v Hayward [1983] SASR 462 at 466.
He later commented: [11]
In my view of the Statute, the form is somewhat confusing, but the meaning is fairly clear. The lien under sec.5 purports to give the plaintiffs a security for the payment of the debt due by Provis, but sec.6 cuts down the security by limiting the right to enforce the lien. Where sec.6 applies the right to enforce the lien is limited – in extent – to moneys which the contractor could otherwise have recovered from the owner. That is to say, that any money, which is – from time to time – payable to Provis, must be paid by the defendants to the plaintiffs, until the debt secured by the lien has been satisfied, and, in case of default by the defendants, the payment to the plaintiffs can be enforced against the land. But the security does not extend to enable the plaintiffs to obtain payment of anything that Provis could not have recovered from the defendants under his contract with them.
[11] Metropolitan Brick Co v Hayward [1983] SASR 462 at 467.
This construction of the provisions of the Worker’s Liens Act has since been accepted and applied in subsequent authorities.[12] In Albert Del Fabro Pty Ltd, Bright J noted:[13]
I interpret the words “so far as accrued due” in s.6 as indicating that a portion only of the price may have accrued due. Note also the words “being payable” and “shall have become payable” in s.10(2). These two phrases connote that the price or a portion thereof has accrued due.
The words “become due” in s.10(2) do not mean the same as the words “accrued due” in s.5. The sequence is that the sub-contract or a portion thereof has been performed, the sub-contract price of a portion thereof has accrued due, and pursuant to s.10(2) the price or portion thereof which has accrued due has also been deemed to become due.
A lien exists when the price or a portion thereof has accrued due, but is “available” (as mentioned in s.10(1)) only after it has also become due. The price accrues due at such time as is provided or implied in the sub-contract.
…
I think that if the price becomes due, and is protected by due notice and action, then the lien is “available”, that is to say constitutes a charge on the land, from the date upon which the price accrued due. This seems to me to be the proper construction of ss.6, 7 and 10, but with the limitation that the owner is exonerated in respect of moneys actually paid by him before he receives notice.
[12] See Birchall Constructions Pty Ltd v Jape Nominees Pty Ltd (1982) 14 NTR 6; Albert Del Fabro Pty Ltd v Wilckens & Burnside Pty Ltd [1970] SASR 277.
[13] Albert Del Fabro Pty Ltd v Wilckens & Burnside Pty Ltd [1970] SASR 277 at 284.
On appeal Chamberlain J, although dissenting, expressed a similar view:[14]
Section 5, so far as it needed to be quoted, provides that a sub-contractor shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of the building owner. That is to say for so much of his contract price with the head contractor as has “accrued due”, or as I understand it, become immediately payable. By s.6, as I read it, such a lien is not to extend beyond that portion of the contract price payable by the owner (i.e. to the head contractor under the head contract) and unpaid at the time when the owner receives notice of the lien or of its registration.
[14] Albert Del Fabbro Pty Ltd v Wilckens & Burnside Pty Ltd [1971] SASR 121 at 132. See also Advanced Civil Engineering Pty Ltd v Wyara Pty Ltd [1986] NTJ 715; Leichhardt Development Co Ltd v Pipeline Properties Pty Ltd (1989) 97 FLR 148.
Attention was drawn to W Curl & Sons Regd v Buck Industries Pty Ltd where Hogarth J observed: [15]
The mental gymnastics necessary to construe the legislation are not inconsiderable.
Section 10(2)(b) contemplates that a contract price may be deemed to have become “due” under the section even though it has not (apart from the section) become “payable”, e.g. where a meeting of creditors is called before the contract price becomes recoverable as a debt. In s.10(2), then, and therefore also in my opinion in s.7(3), the word “due” is used as meaning “presently payable”. I think it follows from the reference in s.10(2) to a contract price becoming due if “either before or after the same shall have become payable” the person liable to pay the same is subjected to the section, that the word “payable” there means “payable in praesenti”. So, although money may have become “payable” at common law, it is nevertheless not “due” within the meaning of the section unless the procedure has been carried out. But when once money had become “due” under the section, I think that it must then be regarded as recoverable and therefore “payable”.
[15] W Curl & Sons Regd v Buck Industries Pty Ltd (1972) 2 SASR 335 at 340-342.
In Marriott Industries Pty Ltd v Mercantile Credits Ltd[16] this Court expressed the view that section 10 of the Worker’s Liens Act constitutes a code which must be complied with before any lien claim is available to a lienor, in the sense of being enforceable. It necessarily follows that it was a pre‑condition for the enforcement of a lien by a contractor against the owner that a valid demand be made to support the lien, as envisaged by section 10(2). That notice of demand could only validly be served in respect of any contract price then payable by the owner to the contractor – in the sense in which that word is employed in section 10.
[16] Marriott Industries Pty Ltd v Mercantile Credits Ltd (1991) 160 LSJS 288.
The above authorities were reviewed by this Court in Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd[17] where King CJ concluded:
I apprehend the relationship of the sections under discussion and the scheme of the Act with respect to liens to be as follows.
It seems to me that a contractor’s or sub-contractor’s lien can only arise when the lienor’s title to the debt has accrued under the terms of his contract (section 5), although it may arise notwithstanding that the debt, having arisen, is payable in the future. The extent of the lien is limited by section 6 to the amount due and presently payable by the owner or occupier under the contract for the purpose of which the work was done or the materials supplied. In a situation in which a lien which has arisen because an amount has accrued due under the contract, but there is no amount presently payable by the owner or occupier, the lien is dormant until an amount becomes so payable.
Although a lien has arisen by reason of the contract price or part thereof having accrued due under the terms of the contract, it is not available, that is to say not capable of enforcement or valid as a security, until it has “become due” for the purposes of section 10. That will occur if one or other of the events enumerated in section 10(2)(b) has occurred, or if the price is unpaid for seven days after notice has been given under section 10(2)(a). That notice can only be given validly after the price is payable, that is to say after the entitlement has arisen under the contract, thereby bringing the lien into existence, and the time for payment has arrived. The lien, if it has acquired a valid existence by reason of the price having accrued due, may be registered pursuant to section 10(4) prior to the section 10(2)(a) notice, but the action to enforce it cannot be commenced until the lien is “available” under section 10(1).
Olsson J similarly observed:[18]
It will at once be seen that there is an important distinction to be drawn between the concepts of sections 5 and 6 of the Act. In using the phrase “accrued due” in section 5 the draftsman has spelt out the requirement that the right to a lien does not come into existence unless the moneys claimed as between the lienor and the party directly liable to pay, have become payable in praesenti.
On the other hand, assuming that liability has so crystallised for the purposes of section 5, section 6 then limits the extent of the potential operation of the lien to the fund from which moneys are payable (in the case of a sub-contract situation) by the building owner to the head contractor. That is to say, the word “payable”, as employed in section 6, is, in fact, employed simply to connote moneys which may, from time to time, be or become payable in accordance with the provisions of the head contract by the building owner to the head contractor. So it is that the lien cannot be enforced in a manner which requires a building owner to make payment to a head contractor otherwise than in accordance with the express terms of the relevant contract.
[17] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270 at 276.
[18] Longreef Pty Ltd v Leighton Contractors (South Australia) Pty Ltd (1991) 160 LSJS 270 at 286.
The linchpin for the existence of a lien under the Act is that the contract price, or part thereof, shall have “accrued due”. In the circumstances of the present case, certification by the Superintendent was required before that situation occurred.
As earlier observed, in the present case Badge Constructions accepted that the worker’s lien could only be supported by the pleaded implied contractual terms. It was also accepted that for the lien to be upheld money had to have accrued pursuant to those implied terms. A question that arises on this appeal is whether the pleaded implied terms can sustain the lien.
Rule Chambers submitted that there was nothing in the pleadings or in any other material before the Court which would allow the conclusion that the lien was sustainable. It was contended that the alleged implied terms were inconsistent with the written terms of the contract. It was pointed out that certain terms had been excluded from the contract by express agreement and that the proposed implied terms would, in substance, replace that which had been expressly excluded. It was said that in these circumstances the Master was correct to direct the removal of the lien.
This Court has recently reviewed the approach to be taken to the construction of commercial contracts and the basis for the implication of terms.[19] These authorities drew on the following observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority NSW:[20]
Accordingly, the courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. So in Heimann v. The Commonwealth, Jordan C.J., citing Bell v. Lever Brothers Ltd., stressed that in order to justify the importation of an implied term it is “not sufficient that it would be reasonable to imply the term. ... It must be clearly necessary”. To the same effect are the comments of Bowen L.J. in The Moorcock, Lord Esher M.R. in Hamlyn & Co. v. Wood & Co., Lord Wilberforce in Irwin; Scrutton L.J. in Reigate v. Union Manufacturing Co. (Ramsbottom).
The basis on which the courts act in implying a term was expressed by MacKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd. in terms that have been universally accepted: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying ...”
The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council: “(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
[19] See Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (In Liq) (2006) 95 SASR 21 at [31]-[60]; Woolworths (SA) Pty Ltd v Basetone Pty Ltd (2006) 95 SASR 174 at [76]-[86].
[20] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346-347 (footnotes omitted).
Turning to the present case, it is neither reasonable nor equitable to imply into an agreement terms that are the same as, or consistent, with provisions expressly excluded from the contract. Nothing in the amended pleading or any other material before this Court has made out a basis for the implied terms being reasonable and equitable.
The submissions of Badge Constructions overlook the provisions of the contract that deal with final payments and what would take place in the event of default by either party. Clause 37.4 provides that, following the expiration of the last defects liability period, the Superintendent shall issue a final certificate evidencing the moneys finally due and payable between the contractor and the principal, on any account whatsoever, in connection with the subject matter of the contract. This would appear to pick up all moneys, including securities that may have been lodged.
In the event of default by either party, clause 39.10 provides for the parties’ remedies, rights and liabilities to be resolved as though the defaulting party had repudiated the contract and the other party elected to treat the contract as at an end. Again, finality in accordance with the contract will occur.
The contract provides a scheme for the resolution of disputes and ultimately for the payment of all moneys due and owing. The parties agreed to this scheme, and are bound by it.
The Tie in Deed also has relevance to the suggestion that implied terms form part of the contract. The deed provides:
Entire Agreement
[Rule Chambers] and [Badge Constructions] warrant that:
(a)the Building Contract in the form provided to the Financier contains the entire agreement between [Rule Chambers] and [Badge Constructions] with respect to the Works; and
(b)no other agreement exists between them in relation to the Works.
This provision indicates that Badge Constructions was warranting to the financier that the written terms of the contract, in the form provided, represented the entire agreement. The suggested implied terms import other agreements, materially extending the operation of the contract.
Should Badge Constructions wish to pursue its claim that terms can be implied into the agreement, it would appear necessary that the financier be joined as a party to the proceedings, as its rights under the Tie in Deed could be affected.
There is no need to imply terms to give business efficacy to the contract. The contract makes clear provision for the circumstances under which money is due and payable by Rule Chambers to Badge Constructions. This was the agreement struck between the parties and a workable business arrangement had been put in place. The contract is effective without the implied terms. There is nothing that supports a conclusion that the implication of the terms is so obvious that it goes without saying. The suggested implied terms contradict the express terms of the contract, and more importantly, are directly contrary to the intent of the parties in excluding like provisions at the time the contract was signed.
In my view, there is no real prospect that the pleaded implied terms will be found to be terms of the contract. This is a consequence of the conclusions expressed in the preceding paragraphs. It appears that there was no opposition to the amendment of the statement of claim to plead implied terms. Having regard to the foregoing, an application to strike out that part of the pleading may be thought to have substantial prospects of success. However, that is not an application presently before this Court. I do not consider that Badge Constructions has made out an arguable case that moneys are due and payable under the contract.
Discretionary Considerations
Badge Constructions contended that if the jurisdiction of the Court was enlivened, there were factors relevant to the exercise of the discretion that were overwhelmingly in favour of the lien being allowed to remain on the titles. Those factors were said to include the consequence that Badge Constructions would be unsecured if the lien was removed; that Rule Chambers was an interstate company with no apparent resources; that Rule Chambers had refused to mediate and to accept an offer that was said to resolve any prejudice; and that the application to remove the lien had been made without any attempt to resolve the issue and without notice.
Having regard to the extensive disputes earlier identified, it is difficult to draw any conclusion from the assertions of a failure to negotiate or to accept out of court offers. Concerns about Rule Chambers’ financial status could be addressed by the seeking of a Mareva injunction, supported by appropriate evidence.
The offer to remove the lien from a particular title, on condition that the moneys claimed be paid into court, or to the Registrar, did not address the underlying issue of principle and, in any event, would not overcome difficulties that might arise with respect to refinancing. In my view, a weighing of all relevant factors leads overwhelmingly to the conclusion that the lien should be discharged from all titles.
The terms of the Tie in Deed discussed earlier in these reasons provide further grounds for the exercise of the discretion to order the removal of the lien.
Conclusion
For these reasons this appeal should be dismissed.
WHITE J: The circumstances which give rise to this appeal are set out in the reasons of Gray J.
The Building Contract and its Termination
The appellant, Badge Constructions (SA) Pty Ltd (Badge), entered into a detailed written contract with the respondent, Rule Chambers Pty Ltd, to carry out major construction and refurbishment work on the building at 19-21 King William Street, Adelaide. The written contract provided for progress payments. A dispute arose between the parties about contractual variations. The details of that dispute are not presently material. Badge wrote to the agent of Rule Chambers on 28 September 2006 informing it of its belief that Rule Chambers was acting unreasonably. Badge said that it had, in consequence, withdrawn all labour, materials and tools from the site and had ceased work in all areas of the building. It said that it was obtaining legal advice concerning its “full contractual rights”.
By letter dated 29 September 2006, Rule Chambers informed Badge that it considered Badge’s conduct to be repudiatory, that it accepted the repudiation and was terminating the contract. The relevant part of the letter stated:
By abandoning the Site and the Works, Badge has clearly and expressly evinced an intention to no longer be bound by the terms of the Contract, which conduct amounts to repudiatory conduct.
The purpose of this letter is to confirm that Rule Chambers accepts Badge’s repudiation of the Contract, and hereby terminates the Contract. Rule Chambers now treats the Contract as discharged.
We will be taking steps to pursue Badge for the loss and damage accruing from Badge’s repudiatory conduct.
Badge responded on 30 September 2006 to deny that its conduct was repudiatory and that Rule Chambers was entitled to terminate the contract. Badge asserted that the contract remained on foot. Over the following months there ensued an exchange of correspondence in which each party maintained its position. However, Badge did not ever return to the work site.
Eventually, on 15 February 2007, the solicitors for Badge wrote the following to Rule Chambers:
1.Your actions in refusing our client access to site amounted to a breach of contract and your continued refusal to allow our client access to carry out contract work amounted to a repudiation of the Contract. To date, our client has not accepted that repudiation.
2.We understand that you have engaged others to carry out our clients scope of work. That amounts to a breach of the contract and also amounts to a repudiation of the Contract.
3.Your refusal to mediate and/or acknowledge the existence of a contract is a further fundamental breach of the Contract which also amounts to a repudiation of the Contract.
Given your stance in respect of mediation, our client hereby, and reluctantly, accepts your repudiation/s of the contract and will now pursue its rights in the Courts.
The position asserted here by Badge was that Rule Chambers had engaged in repudiatory conduct, that Badge accepted the repudiation and was therefore treating the contract as at an end.
The Lodgement of the Worker’s Liens
At the time Badge entered into the contract, the land at 19-21 King William Street was held in one title. On 14 November 2006 Rule Chambers registered a Community Title Scheme and 73 separate titles were created. Rule Chambers then proceeded to sell some of the units in the building. However, on 16 March 2007 Badge lodged a notice of lien with the Registrar-General at the Lands Titles Office pursuant to the Worker’s Liens Act 1893 (SA) (the WLA). That lien was lodged on those titles that remained in the name of Rule Chambers. The lien purported to secure the sum of $613,016.79, the amount said to be owing to Badge for work performed on the building which had not been paid under any progress claim.
At the same time, Badge instituted proceedings in this Court to enforce its claimed entitlement to payment. Badge alleges various breaches of contract by Rule Chambers. This includes the alleged failure of Rule Chambers to pay progress payments in a timely way and to ensure that its Superintendent carried out the assigned responsibilities honestly, fairly and appropriately. Badge alleges that Rule Chambers repudiated and wrongfully terminated the contract by its letter of 29 September 2006 referred to above. Badge says that it had refused to accept the repudiation at that time and had remained ready and willing to complete its contractual obligations. After further alleged contractual breaches by Rules Chambers, Badge alleges that it accepted the repudiation of the contract by its letter of 15 February 2007.
The principal remedies sought by Badge are damages and an order for the enforcement of its lien.
Issues on the Appeal
On an interlocutory application by Rule Chambers, a master of this Court ordered the cancellation of the lien and made consequential orders for the removal of the lien from the various certificates of title. The master concluded that it had not been open to Badge to lodge the lien because, at the time of the lodgement, no moneys were accrued and due to Badge under the building contract. The master made those orders under s 32 of the WLA which provides:
Any person alleging that he is prejudicially affected by a claim, lien, or charge, or by registration under this Act, may at any time apply to the court to have such claim or registration cancelled or the effect thereof modified, and such order may be made as may be deemed just.
Badge now appeals against those orders.
Badge submitted that an order to cancel the lien should not have been made before the hearing and determination of its substantive claims. It submitted that the order was effectively a summary judgment about its entitlement to the security provided by the lien. That being so, the order of the master should have been made only if there was no reasonable basis for Badge’s claim.[21] I will approach the matter on that basis.
[21] Supreme Court Civil Rules 2006 (SA) r 232(2)(b).
Thus the principal issue on the appeal is whether there is a reasonable basis for the lien lodged by Badge. This requires consideration of the provisions of the WLA. Ultimately, the issue is whether it is reasonably arguable that the contract between Badge and Rule Chambers contains certain implied terms alleged by Badge.
A subsidiary issue is whether Rule Chambers had shown that it was prejudicially affected by the lien so as to have the standing contemplated by s 32 of the WLA.
Was the Claim to Payment Asserted by Badge within the Worker’s Liens Act?
The Relevant Provisions of the Worker’s Liens Act
Section 5 of the WLA establishes the entitlement of a contractor such as Badge to lodge a lien:
A contractor or sub-contractor shall have a lien for the contract price, so far as accrued due, on the estate or interest in land of any owner or occupier in each of the following cases:
(a) Where the work is done, with the assent, express or implied, of the owner or occupier to the land or to any fixture thereon:
(b) Where the materials are, with the assent, express or implied, of the owner or occupier, used or intended to be used in or about work done, or intended to be done, to the land or to any fixture thereon. [Emphasis added]
Thus a contractor has a lien for the contract price only to the extent that that price has “accrued due”.
Section 6 limits the extent of the liability of the owner or occupier secured by the lien:
Liens under subsection (1) of section 4 or under section 5 shall not, in cases other than those of workers employed by the owner or occupier, extend beyond that portion of the contract price payable by the owner or occupier under the contract for the purposes of which the work or materials are done, furnished, or manufactured and unpaid at the time when the owner or occupier shall receive notice of the lien or of its registration, whichever shall first happen, nor extend at all to cases where there is no such contract binding the owner or occupier to pay a contract price. [Emphasis added]
Under s 6, the liability of an owner or occupier to a contractor cannot exceed the balance of the contract price “payable” under the contract by that owner or occupier at the time it receives notice of the lien.
Section 10 of the WLA determines when a lien becomes available:
(1) A lien under this Act with regard to land shall be available only if registered before the expiration of twenty-eight days after the wages or contract price in respect of which such lien has arisen shall for the purposes of this section have become due.
(2) Any wages or contract price shall for the purposes of this section be deemed to have become due—
(a)if unpaid for seven days after the same (being payable) shall have been demanded by notice in writing, signed by the person claiming the same and given to the person liable to pay the same, or posted in a registered letter addressed to him at his usual or last known place of abode in South Australia:
(b)if either before or after the same shall have become payable, the person liable to pay the same shall have called a meeting of his creditors, or committed an act of bankruptcy, or executed a deed of assignment within the meaning of the Bankruptcy Act 1924 of the Commonwealth, or shall have taken or attempted to take the benefit of any law relating to bankrupts or insolvent debtors, or shall have suffered his goods to be taken in execution or seized under legal process or distress for rent.
…
(4) A lien may be registered after the wages or contract price have become payable, although the seven days mentioned in subsection (2) shall not have commenced to run. [Emphasis added]
…
Section 10(1) provides that a lien must be registered within 28 days of the contract price to which it relates becoming “due”. Section 10(2)(a) deems the contract price to have “become due” if, provided it is “payable”, it has remained unpaid for seven days after a written demand was issued. Section 10(4) permits the lien to be lodged even if the seven day period has not yet commenced to run.
The proper construction and application of ss 5, 6 and 10 has caused much difficulty. See for example Metropolitan Brick Company v Hayward;[22] Albert Del Fabro Pty Ltd v Wilckens and Burnside Pty Ltd and Arndale (Marion) Pty Ltd;[23] W Curl & Sons (Reg’d) v Buck Industries Pty Ltd and Dillingham Constructions Pty Ltd;[24] and Daniels v Sabemo (SA) Pty Ltd.[25] Sections 5, 6 and 10 have been considered by the Full Court most recently in Longreef Pty Ltd v Leighton Contractors (SA) Pty Ltd[26] and Marriott Industries Pty Ltd v Mercantile Credits Limited.[27] The decisions in Longreef and Marriott Industries were delivered by the same Full Court and on the same day. Olsson J (with whom Mohr J agreed in both decisions) held that s 10 constitutes an exclusive code identifying the circumstances in which an enforceable lien is available to a lienor.[28] Olsson J identified the following requirements for a lien to be available to a contractor against an owner or occupier:
1.Absent an event of insolvency of the kind contemplated by s 10(2)(b), there must have been a valid demand made under s 10(2)(a) to support the lien.[29]
2.A valid demand could only be made if the contract price (or part of it) was then “payable” by the owner to the contractor.[30]
3.To be payable in the requisite sense, those moneys must have “accrued due”. In other words the moneys must be presently payable in that the time for payment must have arrived. This is the effect of s 5.[31]
4.Section 6 then limits the extent of the potential liability of the owner or occupier to the fund from which the moneys may be payable, in other words, the moneys which may from time to time become payable.[32] Portions of the contract price which have already been paid by the owner or occupier are, by definition, no longer payable in this sense.
[22] [1938] SASR 462.
[23] [1970] SASR 277.
[24] (1972) 2 SASR 335.
[25] (1986) 43 SASR 552 at 556.
[26] (1991) 160 LSJS 270.
[27] (1991) 160 LSJS 288.
[28] Longreef Pty Ltd v Leighton Contractors (SA) Pty Ltd (1991) 160 LSJS 270 at 281 per Olsson J; Marriott Industries Pty Ltd v Mercantile Credits Limited (1991) 160 LSJS 288 at 310 per Olsson J.
[29] Longreef Pty Ltd v Leighton Contractors (SA) Pty Ltd (1991) 160 LSJS 270 at 282 per Olsson J.
[30] Ibid at 282.
[31] Ibid at 286.
[32] Ibid at 286.
The reasons of King CJ as the remaining member of the Court were to similar effect. King CJ held that s 10 exhaustively prescribes the conditions in which a lien can be lodged.[33] For money to be “payable” within the meaning of s 10(2)(a) the contract price (or portion of it) must have accrued due under the contract.[34] To have “accrued due” the time for payment must have arrived.[35]
[33] Marriott Industries Pty Ltd v Mercantile Credits Limited (1991) 160 LSJS 288 at 294 per King CJ.
[34] Ibid at 294.
[35] Ibid at 293-94.
In a case such as the present, a lienor has a valid lien only if two requirements are met. First, the lienor had a present entitlement, at the time of registration of the lien, to payment of some or all of the contract price under the contract with the owner. Secondly, the lienor had given a valid notice under s 10(2)(a). This is the approach I take in determining this appeal.
No Entitlement to Payment on the Express Terms of the Contract
The contract price was $7,781,000. Clause 37 provided for progress payments. Badge was to submit claims for progress payments on the 28th day of each month for work performed up to the 27th day of each month. Within 10 days of receiving the claim, the Superintendent of Rule Chambers was required to issue a progress certificate evidencing the amount which, in the Superintendent’s opinion, was due from Rule Chambers to Badge and a further certificate evidencing the amount (if any) due from Badge to Rule Chambers. If Badge did not submit a claim, then the Superintendent was required to issue a progress certificate regardless. Rule Chambers was required to pay any amount due to Badge within seven days of receiving the Superintendent’s certificate.
Any other payment under the contract would be made at the time of the final payment at the expiration of the defects liability period 13 months after practical completion.
Badge accepted before the master and this Court that it could not demonstrate by reference to the express terms of cl 37 that any moneys had accrued to it which were due (in the sense of immediately payable). Badge accepted that at the date of lodgement of its lien each progress claim had been processed by the Superintendent in the manner contemplated by cl 37 and that the amount certified by the Superintendent in each case had been paid.
Reliance on Implied Terms
Badge submitted that the contract with Rule Chambers contained certain implied terms. It contended that the moneys which it sought the lien to secure had accrued and were due to it under those implied terms.
Originally, Badge’s Further Amended Statement of Claim claimed four implied terms:
6A.1In the event that the Superintendent fails to issue any certificate in respect of a progress claim that the amount of the claim would be due and payable by the Principal within 21 days after the Superintendent receives the progress claim;
6A.2In the event that the Principal wrongfully terminated the Contract any progress claims which had not been the subject of a certificate by the Superintendent would be due and payable by the Principal within 21 days of that wrongful termination;
6A.3In the event that the Principal wrongfully terminated the Contract, any work which the Contractor had carried out since its last progress claim, and which would have been the subject of a progress claim in the future, would be due and payable by the Principal within 21 days of that wrongful termination;
6A.4In the event that the Principal wrongfully terminated the Contract, the Principal would forthwith return any security provided pursuant to cl 5 of the Contract.
Although the pleading alleged that each was implied into the contract as a matter of law, Badge did not pursue that claim on the appeal. Further, Badge abandoned the claim for the term pleaded in 6A.1. Badge accepted that this term was, for material purposes, identical to a term which had been deleted by the parties from the standard form contract which they had adapted for their use. Badge conceded that in these circumstances it was not reasonably arguable that the parties had nevertheless contemplated the implication of that term.[36]
[36] Cf Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352-53 per Mason J; Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [137] and the cases cited therein; Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296 at [20]. On the use generally of deleted words in the construction of written contracts see the article by T Davie “The Admissibility of Deleted Words” in (1993) 9 BCL 154.
Badge submitted that each of the remaining terms satisfied the conditions for the implication of a term as endorsed in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[37] namely:
(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that “it goes without saying”;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract.
[37] [1982] HCA 24; (1982) 149 CLR 337 at 347 per Mason J. See also Byrne and Frew v Australian Airlines Limited [1995] HCA 24; (1995) 185 CLR 410 at 422, per Brennan CJ, Dawson and Toohey JJ, and 441 per McHugh and Gummow JJ.
Badge then submitted that the interlocutory application by Rule Chambers to cancel the lien did not provide an appropriate occasion to determine whether the contract did contain these implied terms.
As I understand the position, Badge contends that the moneys secured by the lien are due to it by virtue of the implied terms alleged in paragraphs 6A.2 and 6A.3.
In my opinion, there are at least two reasons why it can be said at this stage that it is not reasonably arguable that the pleaded implied terms support the lien lodged by Badge. I will identify these in turn.
The Implied Terms are Not Reasonable or Equitable
The first condition for the implication of a term into a contract is that the term is reasonable and equitable.
The three remaining implied terms are to operate when there has been a wrongful termination of the contract by Rule Chambers. If Rule Chambers terminates the contract wrongfully then any progress payment not yet the subject of a certificate by the Superintendent becomes due and payable within 21 days; any work carried out by Badge since its last progress claim which would have been the subject of a future progress claim becomes due and payable within 21 days; and Rule Chambers must return forthwith any security provided by Badge.
On a conventional contractual analysis, a breach of contract or an act of repudiation does not bring the contract to an end. Neither affects the subsistence of the contract unless the promisee elects to rescind or terminate the contract. Until the promisee elects to treat the contract as at an end, it remains on foot and continues to bind both parties.[38] It is therefore important to identify in this case the act of termination which could attract the operation of the implied terms. According to Badge, this contract was terminated on 15 February 2007 by its own conduct when it accepted the alleged repudiatory conduct of Rule Chambers. Significantly, Badge does not contend that the contract was terminated by Rule Chambers in a legal sense, whether lawfully or otherwise.
[38] Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 416 per Brennan J.
Mr Jenner, for Badge, submitted that the conduct to which the implied terms referred was that of Rule Chambers purporting, without legal justification, to terminate the contract. That is, the implied terms operate on an attempt to terminate the contract which is not legally effective. The conduct of Rule Chambers on 29 September 2006 was said to be conduct of that character.
In practice, the entitlement of a promisee to terminate a contract for breach or repudiation is often a matter of considerable contention. Parties often hold, honestly and reasonably, different views on this matter. A promisee can genuinely, and yet mistakenly, believe that circumstances have arisen entitling it to treat the contract as at an end. This can arise from a mistaken view about the significance of a contractual term breached by the promisee;[39] from a mistaken assessment of the other party’s intention to continue to be bound by the contract;[40] or for other reasons.[41] If circumstances of these kinds occurred, the proposed implied terms would require Rule Chambers to make payments to Badge within 21 days and forthwith to return any security, despite an honest and reasonable belief that it was the wronged party. This would involve a contradiction for Rule Chambers. It would genuinely consider that it was entitled to terminate the contract. However, to know that the circumstances contemplated by the implied term had arisen it would also have to conclude, almost simultaneously, that it was not entitled to act in that way at all. In a further contradiction, although Rule Chambers would have to acknowledge that its attempt to terminate the contract was wrongful and that unless and until Badge accepted the repudiation the contract remained on foot, it would, at least in one respect, have to treat the contract as at an end, ie, by returning its security. Further, although the contract would remain on foot unless and until Badge accepted the repudiation, the provisions in the contract for progress payments and resolution of payment disputes would be bypassed.
[39] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 629 per Mason CJ.
[40] Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 393 and 410 per Mason CJ.
[41] Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537 at 543 per Gibbs CJ.
Terms which involve such contradictions cannot be considered reasonable. Any implied term is expected to be capable of a practical application. In my opinion, the implied terms alleged by Badge cannot be regarded as reasonable or equitable. Thus the first condition for the implication of terms is not satisfied.
Terms Not Necessary to Give the Contract Business Efficacy
Clause 39 of the contract contains a number of provisions governing a circumstance of default which might arise during the performance of the contract. Sub-clause 39.1 preserves the common law rights of the parties in respect of a breach or repudiation. Sub-clauses 39.2 to 39.6 inclusive then provide the parties’ obligations and entitlements in the event of a “substantial breach” by Badge. For present purposes those provisions can be put to one side. Sub-clauses 39.7 to 39.9 inclusive provide for a default by Rule Chambers. After a “substantial breach” by Rule Chambers, sub-cll 39.7 and 39.8 enable Badge to give Rule Chambers a written notice to show cause why Badge should not suspend further works and in due course terminate the contract. Rule Chambers must be given at least seven days in which to show cause. If it fails to do so, then Badge can suspend the whole or any part of the work and, if Rule Chambers has not remedied the breach within a further 28 days, terminate the contract under sub‑cl 39.9. Any damages suffered by Badge because of the suspension are to be assessed and certified by the Superintendent as moneys due and payable to Badge. Sub-clause 39.10 provides that upon termination by either party pursuant to the contractual provisions for termination, each party’s remedies, rights and liabilities are to be the same as they would have been under the law governing the contract had the other party elected to treat the contract as at an end following the repudiation by the other.
In short, the parties have expressly provided in the written contract for their respective rights and obligations in the event of default by the other. Upon a repudiation (including a wrongful termination in the sense for which Badge contends) by Rule Chambers, Badge may exercise its common law rights. In addition, after a substantial breach, Badge can require Rule Chambers to show cause. If Rule Chambers does not, Badge can then suspend the works and terminate the contract.
For the terms submitted by Badge to be implied into the written contract, they must be necessary to give it business efficacy. This means that the terms must be necessary “in order to make [the] agreement work, or, conversely, in order to avoid an unworkable situation”.[42] The implication of the term must be clearly necessary for this purpose. It is not enough that the term may be reasonable or even desirable.
[42] BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1994) 180 CLR 266 at 292 (PC) per Lord Wilberforce and Lord Morris of Borth-y-Gest.
Viewed in this way, in my opinion, it is not reasonably arguable that the terms proposed by Badge in paragraphs 6A.2 and 6A.3 of its Further Amended Statement of Claim are necessary to give the contract business efficacy. The contract is quite efficacious without these terms.
It is also arguable that the proposed implied terms contradict the express provisions in sub-cl 39. However, given my view that the claim of Badge fails for the reasons outlined above, it is not necessary to consider this aspect of the matter.
For these two reasons Badge has not demonstrated that the implied terms which it submitted have a reasonable basis. As Badge acknowledges that the basis for its lien is found only in the alleged implied terms, it follows that Badge has not demonstrated a reasonable basis for the lien.
The Building Contract Tie-in Deed
On appeal, Rule Chambers was permitted to present evidence of a building contract Tie-in Deed. The parties to this deed are Investec Bank (Australia) Limited, Badge and Rule Chambers. Rule Chambers obtained finance from Investec. The Tie-in Deed contains a number of covenants apparently designed to protect the position of Investec as financier. By sub-cl 2.1(b) of the Tie-in Deed, Badge agreed that it would not “lodge any caveat” over the property in King William Street.
Section 12 of the WLA deems a notice of lien, when lodged, to be a caveat forbidding the registration of any dealing with the estate or interest in the land affected by the lien unless such dealing is expressed to be subject to the claim of the lienor. It also provides that the provisions of the Real Property Act1886 (SA) relating to caveats are to apply to every notice of lien.
Rule Chambers submitted that, in these circumstances, Badge had bound itself by the Tie-in Deed not to lodge a lien.
Whether a “caveat” for the purposes of the Tie-in Deed includes a notice of lien under the WLA is a question of construction. It involves a search for the meaning intended by the parties to the Tie-in Deed. That task is to be undertaken in the conventional way having regard to the subject matter of the Tie-in Deed, the whole of its content, and the matrix of circumstances that existed at the time that it was made.
Badge submitted that it was significant that the Tie-in Deed provides that it is governed by, and is to be construed in accordance with, the law of Victoria. It said that under Victorian law a worker’s lien is not available. Badge submitted that those circumstances lead to the inference that the parties did not intend that the word “caveat” should include a worker’s lien. However, although the Tie-in Deed is governed by, and is to be construed in accordance with the law of Victoria, it relates to a contract for building and construction work to be carried out in South Australia. The Victorian Real Property legislation could not therefore apply to the subject land. It is reasonable to suppose that the parties were intending to refer to the forms of caveat which could be lodged on South Australian land. It would not be difficult therefore to construe the covenant by Badge in the Tie-in Deed as meaning that it undertook not to lodge a caveat, or any other document having the effect of a caveat, on the subject land.
While it would not be difficult to draw this conclusion, I do not think that this Court should express a concluded view about the matter. The Court has not heard any submissions from Investec. It is a party to the Tie-in Deed and is entitled to be heard on the proper construction of the contract which seems to have been made principally for its benefit. Accordingly, as a decision on this point is not necessary for the disposition of the appeal, I would refrain from deciding it.
The Standing of Rule Chambers
As discussed earlier, an order under s 32 may be made on the application of a person prejudicially affected by the lien.
Rule Chambers contended that it was prejudicially affected in the relevant way. It submitted that the remaining titles were “clogged” by the lien and impeded its ability to effect transfers following sales of the remaining units. It was also restricted in its refinancing of the project. I am satisfied that these detriments were shown on the evidence before the master to exist and that they constitute material prejudice for the purposes of s 32. I reject the submission of Badge that it removed any prejudice by a professed willingness to allow any transfer of a unit to be registered, providing that the moneys secured by the lien over the title to that unit were held on trust pending the determination of the claim. Even in that circumstance, it would continue to restrict the ability of Rule Chambers to refinance the project.
In my opinion, the decision of the master on this issue was correct.
Conclusion
In my opinion, Badge has not established that its claim to have an enforceable lien has a reasonable basis. That claim depends entirely upon the implied terms alleged by Badge. It is not reasonably arguable that the contract between Badge and Rule Chambers contains the implied terms alleged in paragraphs 6A.2 and 6A.3 of the Further Amended Statement of Claim.
DAVID J. I agree with the reasons of Gray J. I would dismiss the appeal.
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