Community Development Pty Ltd v Engwirda Construction Co

[1969] HCA 47

HIGH COURT OF AUSTRALIA

Barwick C.J. , Kitto, Taylor, Windeyer and Owen JJ. (The RIGHT HONOURABLE MR. JUSTICE TAYLOR died before delivery of judgment in this case.)

COMMUNITY DEVELOPMENT PTY. LTD. v. ENGWIRDA CONSTRUCTION CO.

(1969) 120 CLR 455

10 October 1969

Arbitration—Companies

Arbitration—Building and engineering contract—Scott v. Avery clause—Arbitration clause precluded any action upon any dispute or difference arising under the contract—Building owner a company—Contractor's petition to wind up building owner—Ground of inability to pay debts—Whether petition debarred by arbitration clause. Companies—Winding up by Court—Petition—Contingent creditor—Building contract—Arbitration clause—Arbitration not held—Petitioner claimed company liable under contract to pay upon completion of work to architect's or arbitrator's satisfaction—Whether contingent creditor—The Companies Acts, 1961 to 1964 (Q.), s. 221.

Decisions

October 10.
The following written judgments were delivered:-
BARWICK C.J. I have had the advantage of reading the reasons for judgment prepared in this appeal by my brother Kitto. The expression "contingent creditor" as found in s. 221 of The Companies Acts, 1961 to 1964, of the State of Queensland has raised considerable difficulties in my mind but, after some fluctuation, I have reached the same conclusion as that expressed by my brother Kitto. I am satisfied to agree with his reasons for reaching that conclusion and would add nothing further on my own account. (at p457)

KITTO J. The respondent presented a petition to the Supreme Court of Queensland under s. 221 of The Companies Acts, 1961 to 1964 (Q.), for the winding up of the appellant by the Court. The section empowers the Court to make a winding-up order on the petition of (inter alios) "any creditor, including a contingent or prospective creditor, of the company". (at p457)

2. The respondent petitioned as a creditor or contingent creditor of the appellant in an amount not less than $28,000 in respect of work done by the respondent in the construction of a block of home units upon land owned by the appellant; and in support of its claim to have the asserted locus standi it proved that a contract for the construction of the home units had been made between itself and the appellant containing a Scott v. Avery clause which provided for arbitration upon any dispute or difference as to any matter arising under the contract, including the withholding by the architect of any certificate to which the respondent might claim to be entitled or the proper amount of any certificate, and which provided further that neither party should be entitled to commence or maintain any action upon any such dispute or difference until such matter should have been referred or determined as therein provided, and then only for the amount of the relief to which the award should find either party to be entitled. (at p458)

3. The contract price was $146,596.15, but the respondent asserted that extras had increased the price to $159,731.87 and that the work has been carried to practical completion. Progress certificates for amounts totalling $133,622.28 had been issued by the architect and under these certificates $129,064 had been paid. The balance of $4,558.28 had been retained and presumably had been paid into a joint bank account to form a retention fund as required by the contract. Disputes had arisen between the parties as to whether the respondent had become entitled to the architect's final certificate. The architect had declined to give the certificate and the respondent therefore could not have any further moneys owing to it under the contract unless and until it should succeed in satisfying an arbitrator that it had done work to a value exceeding the payments it had received and should obtain an award for the issue of a certificate to that effect and for payment accordingly. No arbitration had yet been entered upon. (at p458)

4. Clearly the respondent was not a creditor of the appellant in the sense of one to whom money is presently owing, for the effect of the Scott v. Avery clause was to make an award a condition of any obligation on the part of the appellant to pay: Anderson v. G. H. Michell &Sons Ltd. (1941) 65 CLR 543, at p 549 . The respondent's right to maintain the petition depended therefore upon its being a contingent creditor of the appellant, and upon its not being debarred by the arbitration clause from presenting and prosecuting the petition. The arbitration clause precluded "any action upon" a dispute or difference within the clause and the quoted expression in this context means, I think, an action in which an adjudication upon the dispute or difference is involved. By the winding-up petition the respondent did not seek an adjudication upon the question whether it was entitled to a final certificate. It claimed, in effect, that the contract imposed on the appellant a liability to pay the respondent $12,973.87 (the contract price less the amount covered by certificates already given), plus the value of extras, contingently upon the respondent's doing the relevant work to the architect's (or ultimately the arbitrator's) satisfaction and that the fact sufficed to make the respondent a contingent creditor of the appellant. (at p459)

5. Not much assistance is to be gained, I think, from observations that are to be found in reported cases as to the import of the word "contingent", and I shall refer to one only. In In re William Hockley Ltd. (1962) 1 WLR 555, at p 558 , Pennycuick J. suggested as a definition of "a contingent creditor" what is perhaps rather a definition of "a contingent or prospective creditor", saying that in his opinion it denoted "a person towards whom, under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date". The importance of these words for present purposes lies in their insistence that there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen. A building contract creates, as soon as it is entered into, an obligation upon the building owner to pay the contract price, either as a whole upon a future event or, more usually, by progress and final payments each of which is to be made on a future event. The event or events may not happen, but if and when one of them does happen the building owner, by force of the contractual obligation, must pay the builder a sum of money. It is, I think, nothing to the point that the event may be complex, as where the payment is agreed to be made when the whole or some part of the work has been done to the satisfaction of an architect as expressed in a certificate or to the satisfaction of an arbitrator as expressed in an award: the building owner is bound from the time the contract is made to pay money to the builder upon a contingency; and that in my opinion makes the builder a contingent creditor of the owner. (at p459)

6. So here, even if the work required by the contract has not yet been properly completed, the fact remains that the appellant is presently bound by the obligation of the contract to make the final payment if and when, according to a certificate of the architect or an award of an arbitrator, the time for the payment has arrived. The respondent is therefore, in my opinion, a contingent creditor of the appellant for the amount of that payment, whatever the amount may turn out to be. (at p460)

7. This was in substance the view of Matthews J. in the Supreme Court. Before his Honour the appellant denied that it was unable to pay its debts and contended that a case for a winding-up order had not been made out; but his Honour made the order and the Full Court upheld his decision. In the appeal to this Court, argument was addressed only to the question of the respondent's locus standi to petition. For the reasons above stated I am of opinion that the appeal should be dismissed. (at p460)

WINDEYER J. I have had the advantage of reading the judgments of my brethren in this case. I agree that the appeal should be dismissed. (at p460)

OWEN J. The first submission made on behalf of the appellant was that the winding-up petition should have been dismissed because, by presenting it, the respondent had commenced an action upon "a dispute or difference" arising under the building contract between the parties and by cl. 26 of that contract each of them had agreed that no such action should be commenced until the matter in dispute had been referred to and determined by arbitration in accordance with that clause. In my opinion this submission fails. It may well be that the presentation of a winding-up petition is, in some circumstances, to be regarded as the commencement of an "action" (Re W. Carter Smith; Ex parte Commissioners of Taxation (1908) 8 SR (NSW) 246 ); but the presentation of this petition was not the commencement of proceedings based upon the building contract or upon a dispute or difference arising under it. The "cause of action", if it may be so described, was that the appellant was unable to pay its debts and that it was just and equitable that it should be wound up. It is therefore unnecessary for me to consider whether the right to present a winding-up petition which s. 221 (1) of the Queensland Company Act of 1961 confers upon a creditor, including a contingent or prospective creditor of a company, can be restricted or excluded by a contract earlier entered into between the company and the person who presents the petition. (Cf. In re Peveril Gold Mines Ltd. (1898) 1 Ch 122 .) (at p460)

2. The appellant's second submission raises the question whether, having regard to cl. 26 of the contract, the respondent was, at the date of the presentation of the petition, a contingent creditor of the appellant. In In re William Hockley Ltd. (1962) 1 WLR 555, at p 558 , Pennycuick J. expressed the view that a "contingent creditor" denoted "a person towards whom under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date". Earlier, in Ex parte Ruffle; In re Dummelow (1873) 8 Ch App 997, at p 1001 , Mellish L.J., referring to the phrase "contingent debt" in s. 16 (1963) AC 235 of the Bankruptcy Act 1869, had spoken of it as referring "to a case where there is a doubt if there will be any debt at all". The same idea was expressed in In re Sutherland, decd. (1963) AC 235 where the House of Lords had to consider the meaning of the words "contingent liability" in s. 50 (1) of the Finance Act 1940. Lord Reid said:

"If it is not yet certain whether or when tax will be payable, or how much will be payable, why should it not be a contingent liability . . . " (1963) AC, at p 247

His Lordship said:

"The third class is 'contingent liabilities', which must mean sums, payment of which depends on a contingency, that is, sums which will only become payable if certain things happen, and which otherwise will never become payable" (1963) AC, at p 249

And:

"The essence of a contingent liability must surely be that it may never become an existing legal liability because the event on which it depends may never happen" (1963) AC, at p 251

Lord Guest said:

"Section 50 (1) refers both to liabilities which have not matured at the date of death and to contingent liabilities. Contingent liabilities must, therefore, be something different from future liabilities which are binding on the company, but are not payable until a future date. I should define a contingency as an event which may or may not occur and a contingent liability as a liability which depends for its existence upon an event which may or may not happen" (1963) AC, at p 262

Statements to the same effect will be found in In re Robertson (1897) 18 NSWLR 239, at p 244 , and Bakewell v. Deputy Federal Commissioner of Taxation (S.A.) (1937) 58 CLR 743, at pp 754, 755 . In the present case the appellant was, at all material times, under a contractual obligation to pay to the respondent the amount, if any, which might be found by an arbitrator to be due to it under the building contract. Whether or not that obligation would ultimately result in a debt becoming payable by the appellant to the respondent was dependent on a contingency, namely the making of an award in the respondent's favour by an arbitrator acting under cl. 26 of the building contract. In these circumstances I am of opinion that the respondent was, at the date of the presentation of the petition, a contingent creditor fo the appellant. It follows that the respondent was entitled to present the winding-up petition and the appeal should be dismissed. (at p462)

Orders

Appeal dismissed with costs.