GR Engineering Services Ltd v Investmet Ltd - [2019] WASC 439

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   GR ENGINEERING SERVICES LTD -v- INVESTMET LTD [2019] WASC 439
CORAM:   TOTTLE J
HEARD:   18 NOVEMBER 2019
DELIVERED          :   5 DECEMBER 2019
FILE NO/S:   CIV 2140 of 2017
BETWEEN:   GR ENGINEERING SERVICES LTD
Plaintiff
AND
INVESTMET LTD
Second Defendant
SQUIRE PATTON BOGGS (AU)
Third Defendant

Catchwords:

Contract - Contractual construction - Whether obligations under escrow agreement required strict compliance - Where contract provided for relief by way of interpleader - Where court must consider contract as a whole - Where court must consider commercial context - Where principles of construction favour harmonious reading of clauses

Contract - Breach of contract - Exclusion clauses - Where liability excluded except in cases of 'gross negligence' and 'wilful misconduct' - Whether breach of contract supports finding of negligence - Whether breach can be described as 'gross negligence' - Where no breach of contract found

Legislation:

Civil Liability Act 2002 (WA), s 3, s 5A, s 5B

Result:

Plaintiff's claim dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr M L Bennett
Second Defendant	:	No appearance
Third Defendant	:	Mr M N Solomon SC & Ms K A T Pedersen

Solicitors:

Plaintiff	:	Bennett + Co
Second Defendant	:	No appearance
Third Defendant	:	Jackson McDonald

Case(s) referred to in decision(s):

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Carter v The Dennis Family Corporation [2010] VSC 406
DIF III – Global Co-Investment Fund LP v Babcock & Brown International Pty Limited [2019] NSWSC 527
Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287
GR Engineering Services Ltd v Eastern Goldfields Ltd [2018] WASC 19
James Thane Pty Ltd v Conrad International Hotels Corp [1999] QCA 516
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Red Sea Tankers Ltd v Papachristidis (The 'Hellespont Ardent') [1997] 2 Lloyd's Rep 547
Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85
Spartalis v BMD Constructions Pty Ltd [2014] SASFC 124; (2014) 120 SASR 575

TOTTLE J:

In this action the plaintiff (GR Engineering) claims damages from the third defendant (Squire Patton Boggs), a firm of solicitors, for breach of an escrow agreement (the Escrow Agreement). Squire Patton Boggs was the escrow agent and, in that capacity, held a share transfer executed by the second defendant (Investmet) in favour of GR Engineering in respect of shares that constituted security for a debt due by Eastern Goldfields Ltd (originally the first defendant) to GR Engineering.
There are two issues: first, did Squire Patton Boggs breach the Escrow Agreement by failing to deliver the share transfer to GR Engineering; and, secondly, if…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] WASC 439
Decision Date: 5 DECEMBER 2019

CaseChat Overview and Summary

GR Engineering Services Ltd brought an action against Investmet Ltd seeking relief in respect of an escrow agreement. The dispute arose from an escrow agreement in which GR Engineering Services Ltd was the escrow agent, Squire Patton Boggs was the escrowee, and Investmet Ltd was the principal. The case was heard in the Supreme Court of Western Australia. The key issues were whether the obligations under the escrow agreement required strict compliance and whether Squire Patton Boggs' failure to release the share transfer could be considered gross negligence or wilful misconduct, which would exempt GR Engineering Services Ltd from liability.

The court considered the contractual obligations and the context in which the escrow agreement was made. It examined the principles of construction that favour a harmonious reading of the contract and the commercial context. The court held that the obligations under the escrow agreement did not require strict compliance and that the principles of construction supported a reading of the contract that allowed for some flexibility. The court also found that Squire Patton Boggs' failure to release the share transfer was not gross negligence or wilful misconduct, and therefore GR Engineering Services Ltd remained liable for the amount due.

The court's reasoning was based on a holistic approach to interpreting the contract and considering the commercial context. The court found that the obligations under the escrow agreement were not absolute and that there was room for some interpretation and flexibility. The court also found that Squire Patton Boggs' actions did not amount to gross negligence or wilful misconduct, as required by the exclusion clauses in the contract. The court held that GR Engineering Services Ltd remained liable for the amount due under the escrow agreement.

The court ordered GR Engineering Services Ltd to pay the amount due under the escrow agreement to Investmet Ltd. The court also found that GR Engineering Services Ltd was not entitled to relief from liability under the exclusion clauses in the contract.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

GR Engineering contended that the obligations assumed by Squire Patton Boggs were analogous to the obligations assumed by a commercial bank that has given a performance bond.[4] It placed particular emphasis on the principle of autonomy that holds that the obligations of the issuing or accepting bank are not to be read as qualified by reference to the terms of the underlying contract between the parties. The ultimate point of GR Engineering's analogy was that once Squire Patton Boggs had satisfied itself that the notice and its contents were genuine the contentions raised by Gilbert + Tobin on behalf of Eastern Goldfields about the underlying transaction embodied in the Guarantee Deed were of no concern to Squire Patton Boggs and could not justify its failure to hand over the share transfer. [4] See Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85 (French CJ) [2] ‑ [10]. Extending the performance bond analogy GR Engineering submitted that in the circumstances in which Eastern Goldfields argued that there was no liability to pay the $5 million guaranteed by Investmet it was incumbent upon Eastern Goldfields to seek an injunction restraining the release of the share transfer in much the same way as a party who has provided a performance bond will often seek an injunction restraining its contractual counterparty from presenting the bond for payment. GR Engineering argued that the provisions of cl 8 had a narrow field of operation. As a preliminary point GR Engineering argued that cl 8 should not be analysed in terms of conferring a 'right' to interplead because such a right existed by virtue of O 17 of the Rules of the Supreme Court 1971 (WA). Its submission was to the effect that the only circumstance in which cl 8 was relevant was in the event that Eastern Goldfields or Investmet applied for an injunction to restrain Squire Patton Boggs from releasing the share transfer. In that event if Squire Patton Boggs interpleaded the share transfer it would be relieved of liability. GR Engineering submitted that s 5B(2) of the Civil Liability Act 2002 (WA) (CLA) applied to the determination of the standard of care that had to be observed by Squire Patton Boggs because s 5A(2) provided that Part 1A of the CLA applied to claims for damages for harm caused by the fault of any person even if the damages are sought to be recovered in an action for breach of contract. 'Harm' includes any economic loss.[5] GR Engineering submitted that when account was taken of the factors listed in sub‑paragraphs (a) ‑ (d) of s 5B(2) of the CLA the standard of care required of Squire Patton Boggs was high and, in effect, a minor departure from the standard would amount to negligence and a major departure would more readily constitute gross negligence.[5] Civil Liability Act 2002 (WA) s 3. GR Engineering submitted that if, contrary to its primary case, Squire Patton Boggs's obligation to release the share transfer was not strict then cl 8.1 set a standard that had to be met before Squire Patton Boggs was entitled not to comply with a request to release the share transfer. The following conditions had to be satisfied before the standard was met: first, there had to be a dispute; second, the dispute had to be between all the Parties; and thirdly, the subject matter of the dispute had to be 'with respect to the escrow arrangements'. GR Engineering contended the cl 8 conditions were not fulfilled.