Gunns Limited v Gregson Property Development Pty Ltd
[2005] TASSC 115
•24 November 2005
[2005] TASSC 115
CITATION: Gunns Limited v Gregson Property Development Pty Ltd [2005] TASSC 115
PARTIES:GUNNS LIMITED trading as HINMAN WRIGHT & MANSER (ACN 009 478 148)
v
GREGSON PROPERTY DEVELOPMENT PTY LTD (ACN 100 907 051)
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO: 149/2005
DELIVERED ON: 24 November 2005
DELIVERED AT: Hobart
HEARING DATES: 27 and 28 July, 22 August and 2 and 3 November 2005
DECISION OF: Master S J Holt
CATCHWORDS:
Procedure – Tasmania – Practice under Rules of Court – Summary judgment – Requirement that statement of claim disclose a sufficient cause of action.
Supreme Court Rules 2000 (Tas), rr356-359.
Aust Dig Procedure [270]
Contracts – Construction and interpretation of contracts – Implied terms – Generally.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981 – 1982) 149 CLR 337 applied.
Aust Dig Contracts [105]
REPRESENTATION:
Counsel:
Plaintiff: L Sealy
Defendant: H S Murray (27 & 28 July 2005) and
P Tree SC (22 August & 2 & 3 November 2005)
Solicitors:
Plaintiff: Dobson Mitchell & Allport
Defendant: Hugh Murray
Judgment Number: [2005] TASSC 115
Number of paragraphs: 66
Serial No 115/2005
File No 149/2005
GUNNS LIMITED trading as HINMAN WRIGHT & MANSER v
GREGSON PROPERTY DEVELOPMENT PTY LTD
REASONS FOR DECISION MASTER S J HOLT
24 November 2005
The application
The defendant, a development company, by written contract engaged the plaintiff to build 38 residential villas at Waterworks Road, Dynnyrne, in Hobart. The plaintiff has sued for money it alleges to be now due to it under the contract and has applied for summary judgment.
The plaintiff's statement of claim incorporates by reference the written contract and with that incorporation the plea is as follows. The contract provided for progressive payments to the defendant as building works proceeded with the total to be paid, subject to variations, being $6,573,840.90. The contract specified the times at which the plaintiff was to submit progress claims and provided that following receipt of such a claim the defendant was to issue a progress certificate and upon invoice the plaintiff was entitled to payment of the amount certified. The contract went on to provide that in the event that a timely progress certificate did not issue the plaintiff was entitled to payment of the amount claimed following the issue of an invoice. Provision was made for interest to accrue on late payments. The number of progress claims specified was four spread over the period of the contract with the last scheduled to coincide with practical completion of the last of the villas. A fifth and final claim was to be made after the expiry of a six month defects liability period commencing on the date of practical completion. The works continued beyond the specified date for submission of the last of the four progress claims and in January 2005 the plaintiff submitted a fifth progress claim and an accompanying invoice for $1,075,605.92, and in March 2005 the plaintiff submitted progress claim 6 and an accompanying invoice for $541,701.79. The amounts claimed were not adjusted as the defendant did not issue progress certificates. The total of claims 5 and 6 is $1,617,307.71. The defendant in respect of those claims has paid $1,080,605.92, with most of this not being paid until several months after the issue of progress claim 5. The shortfall is $536,701.79 and the plaintiff in the action and in the application for summary judgment claims the unpaid balance plus interest at the contract rate.
The contract contained no express provision for the submission of the fifth and sixth progress claims, but the plaintiff alleges that an entitlement to submit those claims and have them dealt with existed by virtue of an implied term.
Relevantly the statement of claim includes these allegations:
"3 …
Insofar as it was to be implied, the Contract was to be implied from the written terms of the Contract and from the need to give business efficacy to the Contract that the parties must have intended it to have.
4 There were terms of the Contract as follows:
…
(d)that if the execution of the Works continued beyond the date specified in item 14 of Annexure Part A for the submission of progress claim No 4 the plaintiff would thereafter be entitled to submit progress claims at reasonable intervals (implied term);"
It was common ground that if the term alleged should not be implied no obligation to pay progress claims 5 and 6 had arisen on the present state of the pleading.
The power of the Court to give summary judgment for the plaintiff is regulated by the Supreme Court Rules 2000, rr356 – 359. An application for summary judgment can only be made after the defendant has entered an appearance and the plaintiff has served a statement of claim, r356. The application must be supported by an affidavit verifying the facts upon which the claim the subject of the application is based and stating that in the deponent's belief there is no defence, r357. Where a statement of claim does not disclose a cause of action or where the facts upon which the claim is based are not verified by affidavit, or where the deponent fails to state a bona fide belief that there is no defence to the claim or at least that part of it which is the subject of the application, the application must be dismissed. Triffit v Dare & Anor [1992] TASSC 91. Judgment is to be given on the claim or part of the claim unless the application is dismissed or the defendant satisfies the Court that there ought to be a trial, r358. Where the defendant satisfies the Court that there ought to be a trial there is no discretion the defendant must be given leave, either unconditionally or on terms, to defend, r359.
Where a plaintiff applies for summary judgment and a defendant seeks leave to defend leave should only be withheld where it is clear that the plaintiff is entitled to judgment. In Jones v Stone [1894] AC 122, Lord Halsbury said at 124: “The proceeding established by that order is a peculiar proceeding, intended only to apply to cases where there can be no reasonable doubt that a plaintiff is entitled to judgment, and where, therefore, it is inexpedient to allow a defendant to defend for mere purposes of delay.” In Jacobs v Booth’s Distillery Company [1901] 85 LT 262, the Lord Chancellor said: “There are some things too plain for argument; and where there were pleas put in simply for the purpose of delay, which only added to the expense, and where it was not in aid of justice that such things should continue, Order XIV, was intended to put an end to that state of things, and to prevent sham defences from defeating the rights of parties by delay, and at the same time causing great loss to plaintiffs who were endeavouring to enforce their rights.” In Clarke v Union Bank of Australia Ltd [1917] 23 CLR 5 at 8, Barton ACJ said: “I think that the principle to be applied cannot be better stated than it was by Lord Halsbury in Jones v Stone.” In Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, the court said at 99: “The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v Union Bank of Australia Ltd; Jones v Stone; Jacobs v Booth’s Distillery Co. In our view it is not possible to say without doubt, on the whole of the material, that there is no question to be tried …”.
The fact that the determination of an application for summary judgment may involve resolution of questions of law occasioning lengthy argument and deliberation does not mean that summary judgment cannot be given. The court may proceed to hear the argument and make determinations on the questions of law raised or, in its discretion, it may decline to hear the argument and conclude that because of the likely length and complexity of the legal issues involved there ought for that reason to be a trial in the ordinary way: Theseus Exploration NL v Foyster (1972) 126 CLR 507 at 514. As to how the discretion whether or not to hear complex or lengthy argument based on assumed or uncontested facts might be exercised, useful guidance can be found in the judgment of Asche CJ in Civic & Civic Pty Ltd v Pioneer Concrete (NT) Pty Ltd (1991) 103 FLR 196, where he said at 215 – 216:
“Again with great respect to Parker L.J., his remarks may well serve to encourage ingenious counsel to adopt what one would have to call a ‘cuttlefish’ defence. That sagacious mollusk endeavours to confuse and defeat its enemies by pouring forth clouds of inky blackness when attacked. So, resort to a welter of authorities and referral to esoteric points of law might be employed to persuade an overworked judge that the answer is too hard to find on summary proceedings; and the defence thereby gain a much desired breathing space; at the expense of the plaintiff.”
The requirement that the facts on which the claim is based be verified by affidavit
Mr Tree SC, for the defendant, submitted that the application should be dismissed on the ground that the facts alleged to give rise to the implied term have not been verified by affidavit. The statement of claim par3 says that a term authorising additional progress claims where the contract overruns the agreed progress claim schedule is to be implied from the written terms of the contract and "from the need to give business efficacy to the Contract". The affidavit in support of the application says that the allegations in the statement of claim are "true and correct". Under cross-examination the deponent of the plaintiff's affidavit said that in swearing the affidavit he understood "business efficacy" to mean "what is a fair and reasonable thing".
According to Mr Tree this answer demonstrates a misunderstanding by the deponent of an essential allegation of fact in the statement of claim with the result that in reality there is no verification of the facts as required by r357 and, accordingly, the application must be dismissed. I reject this submission as the question of whether or not a term should be implied as being necessary to give business efficacy to a contract is a matter for argument based on facts and there is no requirement that matters of argument must be verified by affidavit. All that needs to be verified are the primary facts upon which the argument is based. As Jordan CJ said in Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691 at 695, in respect of terms implied by facts "The implication is one of law …".
The requirement that the statement of claim disclose a cause of action
Next Mr Tree submitted that on the facts alleged in the statement of claim the term should not be implied. This being an argument of law based on facts pleaded the task of the Court is not to decide whether the argument is arguable, but instead the task is to hear and finally determine the legal point. This is so on a summary judgment application just as it is so on an application to strike out a pleading. Theseus Exploration NL v Foyster (supra).
A party is not entitled to relief where the facts pleaded are insufficient to found the relief sought. In Dare v Pulham (1981 – 1982) 148 CLR 658 the Court said at 664:
"Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings (Gould and Birbeck and Bacon (1916) 22 CLR 490 at pp517, 518 ; Sri Mahant Govind Rao v Sita Ram Kesho (1898) LR 25 Ind App 195, at p207)."
If a plaintiff cannot succeed on the facts pleaded there is no cause of action and just as it is the case that on application such a statement of claim will be struck out it necessarily is also the case that an application by the plaintiff for summary judgment based on such a statement of claim must be dismissed for want of a cause of action.
Should the term alleged be implied?
Terms may be implied from custom or usage; by a past course of dealings between the parties; as a legal incident of a particular class of contract; by statutory provision or as a matter of necessity to give business efficacy. Here, there is a formal written contract complete on its face and the assertion is that the term should be implied as a matter of necessity.
As to the implication of a term to give to a formal contract business efficacy a detailed analysis appears in the judgment of Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981 - 1982) 149 CLR 337. At 346 – 347, 352 and 353, he said:
"For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.
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 (1938) 38 SR (NSW) 691, at p 695 Jordan CJ, citing Bell v Lever Brothers Ltd (1932) AC 161, at p 226 , 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 LJ in The Moorcock (1889) 14 PD 64, at p 68 ; Lord Esher MR in Hamlyn & Co v. Wood & Co (1891) 2 QB 488, at pp 491-492; Lord Wilberforce in Irwin (1977) AC, at p 256 ; Scrutton LJ in Reigate v Union Manufacturing Co (Ramsbottom) (1918) 1 KB 592, at pp 605-606 .
The basis on which the courts act in implying a term was expressed by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd (1939) 2 KB 206, at p 227 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 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, at p 26 : '(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.'
…
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.
The importance of this evolution of the law as it affects the construction of contracts is that it centres upon the presumed, rather than the actual, intention of the parties. Once it is accepted that in the construction of the contract account is taken of the presumed intention of the parties it naturally follows that account should also be taken of their presumed intention when the court is called upon to decide whether a term is to be implied."
The fact that a term proposed to be implied might be or at least seem to be reasonable and equitable is far from being enough. The stringent BP Refinery requirements must each be satisfied where the parties have attempted to reduce the contract to complete written form. See Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979 – 1980) 144 CLR 596 at 605 – 606 and Hospital Products Ltd v United States Surgical Corporation (1984 – 1985) 156 CLR 41 at 65. A more flexible approach can be applied in cases, unlike the present, where the parties have not attempted to spell out the full terms of their agreement. In Byrne v Australian Airlines Ltd (1995 – 1996) 185 CLR 410 Brennan CJ, Dawson J and Toohey J said at 422:
"Further, as Deane J has observed (See Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121), the cases in which the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that a rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was in a later case formulated by Deane J in these terms (See Hawkins v Clayton (1988) 164 CLR 539 at 573):
'The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.'"
Returning to the framework of facts to which regard might be had as referred to in Codelfa, the question, whether or not post contractual conduct can be relied upon as part of the relevant factual matrix is a question which is not free from doubt. Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 315 –316 and 326 – 328, and Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at par109.
Here the statement of claim does not allege any precontractual facts other than the facts that the plaintiff was a builder and the defendant a land developer. There are some post-contractual facts alleged which I will come to later, but I commence by considering whether the term should be implied from the contents of the written contract alone.
As I have said the contract provided for the construction of 38 residential villas on a development site in Hobart. The parties defined in the contract "practical completion" as including the issue by the Hobart City Council of a "Certificate of Occupancy". The date for practical completion is specified to be "Programmed to satisfy Certificate of Occupancy for Villa clusters". Thereafter a list of times commencing from the issue of building approval for villas 1 – 15 and civil works is specified. The contract provides that the time for the issue of a certificate of occupancy for the first four villas was 213 days after building approval for villas 1 - 15. Subject to the timely issue of a building approval for villas 16 – 23 and the timely issue of building approval for villas 24 – 38, by the 290th day certificates of occupancy were to have issued for 29 of the villas and by the 337th day certificates of occupancy were to have issued for all the villas.
The progress claims were to be for the value of the specified work and any variations directed and undertaken to the time of the claim. The first payment was to be claimed on the 108th day after the issue of building approval for villas 1 – 15 with the second, third and fourth claims to be on days 199, 290 and 337 respectively. The fifth and final claim was to be made after the expiry of a six month defects liability period commencing on a date evidenced in a certificate of practical completion or in the absence of such a certificate on a date determined following arbitration or litigation.
As can be seen after about 60% of the contract timeframe had expired two progress payments would have been due, but without the developer having at that stage any income stream from the development, the villas, obviously, not being capable of being occupied until council certificates issued. By the time of the third progress claim certificates of occupancy, subject to the timely issue of building approval for villas 16 – 23 and villas 24 – 38, were to have issued for most of the villas and by the time of the fourth progress claim, subject to timely building approvals, certificates of occupancy were to have issued for all 38 villas. Accordingly, for progress claims three and four, the developer could reasonably have anticipated applying income from the development to the payment obligations. The timing of the third progress claim coincided exactly with the conditional time for completion of most of the villas and the timing of the fourth progress claim coincided exactly with the conditional time for completion of all of the villas.
The five conditions which must be satisfied to justify the implication of a term as set out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at p26, have been set out in the extract from a judgment of Mason J in Codelfa referred to earlier in these reasons. It will be recalled that the term allegedly to be implied as set out in the statement of claim is as follows:
"… that if the execution of the words continued beyond the dates specified in item 14 of Annexure Part A for the submission of progress claim No 4, the plaintiff would thereafter be entitled to submit progress claims at reasonable intervals".
Firstly, I note that the implied term contended for and said to give rise to the entitlement to submit additional progress claims is not expressed to be influenced by considerations such as whether the time overrun was due to late building approvals, due to a breach by the contractor; due to additional requirements of the developer or due to hold ups caused by events outside of the control of the parties such as weather. Secondly, the asserted term does not give any guidance as to what are "reasonable intervals" for the timing of the additional progress claims. Are the "reasonable intervals" to be determined by the effluxion of time such as about every three months or are they to be based upon certain stages of the work being completed or are they to be based on a certain number of certificates of occupancy having been issued to provide an income stream to make the payments or are they to be spaced in a way based upon a combination of some or all of these factors?
The prerequisites which must be satisfied before a term will be implied as a matter of necessity are demanding. This is apparent from the elaboration of the relevant test provided by Jordan CJ in Heimann v Commonwealth of Australia (supra) and MacKinnon LJ in Shirlaw v Southern Foundries(1939) 2 KB 206. Jordan CJ said at 695:
"In order to justify the importation into a contract of an implied term which is not to be found in the express language of the contract when properly construed, and is not annexed by some recognised usage, or by the statute or otherwise, it is essential that the express terms of the contract should be such that it is clearly necessary to imply the term in order to make the contract operative according to the intention of the parties as indicated by the express terms. It is not sufficient that it would be reasonable to imply the term: Bell v Lever Bros Ltd [1932] AC 161 at 226. It must be clearly necessary. And the test of whether it is clearly necessary is whether the express terms of the contract are such that both parties, treating them as reasonable men – and they cannot be heard to say that they are not – must clearly have intended the term, or, if they have not adverted to it, would certainly have included it, if the contingency involving the term had suggested itself to their minds: Reigate v Union Manufacturing Co [1918] 1 KB 592 at 604-5; Comptoir Commercial Anvesois v Power Son & Co [1920] 1 KB 868 at 898-900; Peters American Delicacy Co v Champion 41 CLR 316 at 324; Re Arawa Dairy Co Ltd; Ex parte Carter [1938] NZLR 411."
MacKinnon LJ said at 227:
"I recognize that the right or duty of a Court to find the existence of an implied term or implied terms in a written contract is a matter to be exercised with care; and a Court is too often invited to do so upon vague and uncertain grounds. Too often also such an invitation is backed by the citation of a sentence or two from the judgment of Bowen LJ in The Moorcock (1889) 14 PD 64. They are sentences from an extempore judgment as sound and sensible as all of the utterances of that great judge; but I fancy that he would have been rather surprised if he could have foreseen that these general remarks of his would come to be a favourite citation of a supposed principle of law, and I even think that he might sympathize with the occasional impatience of his successors when The Moorcock (supra) is so often flushed for them in that guise.
For my part, I think that there is a test that may be at least as useful as such generalities. If I may quote from an essay which I wrote some years ago, I then said: '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; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common "oh, of course!"'
At least it is true, I think, that, if a term were never implied by a judge unless it could pass that test, he could not be held to be wrong."
In my opinion a conclusion reached by Mason J in Codelfa is apposite to the circumstances of this case. His Honour said at 356:
"Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution."
Here, the Court does not need to go outside the terms of the written contract itself to conclude that if circumstances arose which had an impact on the construction and payment schedule the parties actual intention was to further negotiate. Item 14 of Annexure Part A of the contract which sets out the progress claim schedule expresses the time to be "… calendar days after the issue of building approval … or as otherwise agreed" [emphasis added]. Clearly the parties contemplated circumstances arising which may have caused the schedule to need revision, but far from any single answer being so clear and obvious that it went without saying the parties contemplated that in such circumstances they would need to further negotiate. Depending on a wide variety of possible circumstances the parties might have agreed to re-space the four progress claims, agreed to just one additional claim or agreed to something else. The actual intention of the parties as disclosed from the written terms of the contract being to further negotiate based on particular circumstances which might arise I am not in a position to presume a contrary intention. In particular, the express terms of the agreement preclude a presumed intention that in the event of an overrun there would not need to be further negotiation as the solution was so obvious that it went without saying, namely, that after progress claim 4 the plaintiff could continue to submit progress claims provided that that was done at "reasonable intervals".
The implied term proposed by the plaintiff, if it existed would apply indiscriminately to any time overrun regardless of its duration or cause and the term as pleaded leaves scope for argument and disagreement as to what might constitute "reasonable intervals". As Mason J pointed out in Codelfa courts are slow to imply terms and I do not think that the express terms of the formal contract under consideration here are such as to result in a conclusion that the term proposed should be implied. I do not think that any of the BP Refinery prerequisites are satisfied. In particular, the contract does not of itself justify conclusions that the proposed term is reasonable and equitable; necessary to give business efficacy to the contract; so obvious that it goes without saying, so expressed as to be clear in its meaning and application and not contrary to the words in item 14 which provided that the parties might otherwise agree.
Under the contract item 5 Annexure Part A, the times within which certificates of occupancy were to be obtained for various villas were specified to be times within a timeframe commencing with building approval issuing for villas 1 – 15. Item 5 went on to say that the number of days specified for the completion of villas 16 - 23 was deemed to be extended if building approval for those villas did not issue within 47 days of building approval for villas 1 - 15, with the length of the extension being the number of days exceeding 47. Similarly, the time for completion of villas 24 - 38 was deemed to be extended if building approval for those villas did not issue within 108 days of building approval for villas 1 – 15 with the length of the extension being the number of days exceeding 108. The fact that the contract contains this provision without the parties going on to make consequential specific provision for an altered claim schedule for this contingency and other possible contingencies reinforces the conclusion that no ready one size fits all solution presented itself so that the parties preferred to leave the matter of time overruns and the claim schedule on the basis that overruns would result in further negotiation.
As I said earlier the plaintiff in addition to the formal terms of the contract relies for the implication on some pleaded post contractual conduct. As already noted there is doubt whether post contractual conduct can be relied upon either for the implication of a term or for the resolution of an ambiguity, but even assuming that it can be, the post contractual conduct alleged here does not assist in demonstrating that the proposed term is reasonable, equitable, necessary, obvious, clear and consistent. What is alleged is that the works continued beyond the date specified for the making of progress claim 4. That progress claim 4 was submitted and thereafter on 18 January 2005 the plaintiff submitted progress claim 5 for $1,075,605.92. Sometime later the plaintiff paid $100,000 in respect of claim 5 and that after the time asserted by the plaintiff as being the date of practical completion the defendant submitted progress claim 6 for $541,701.79. It is alleged that several months after the date of practical completion the defendant paid further sums of $864,654.94 and $115,950,098. These latter two payments being made in June and July respectively. Although the issue of the claims was consistent with the term proposed by the plaintiff the payments by the defendant were not necessarily consistent with the term. Firstly, they were paid months after the receipt of the invoice for claim 5 rather than within the period required by the written terms of the contract. Secondly, the defendant's motivation for making the payments may have been unconnected with any acceptance or acknowledgment of the alleged implied term. On the plaintiff's case all of the villas had reached practical completion, that is to say certificates of occupancy had issued, well before progress claim 5 had been paid in full. The defendant may simply have come into funds as a result of the sale of villas and thought that as the payment would have become due and payable upon the expiry of the defects liability period anyway, that payment was the reasonable and honourable thing to do. Thirdly, the June and July payments were made after the proceedings were commenced in April 2005 in which the plaintiff claims in addition to the payments interest at the contract rate. The defendant may have made the payments as a matter of risk management rather than as an acknowledgment of obligation.
The plaintiff also alleges that on receipt of claims 5 and 6 the defendant did not issue progress certificates. However, that conduct is just as consistent with the defendant not acknowledging the validity of the claims as it is with the defendant accepting that they should be paid in full.
I conclude that even if all of the facts alleged are relevant and were proved at trial the term asserted should not be implied. Because the plaintiff's whole action as presently pleaded stands or falls on the implication of the term the plaintiff will not be entitled to any relief. In other words, there is at present no pleaded cause of action. In such circumstances the order which must be made is an order dismissing the application for want of a cause of action rather than an order giving leave to defend. Triffit v Dare & Anor (supra). There will be an order that the application is dismissed.
Although my conclusion is sufficient to dispose of the application the defendant submitted that in the event that the application was not dismissed I should give leave to defend. This aspect was fully argued and it is appropriate that I should deal with those arguments.
The requirement that the deponent of the plaintiff's affidavit state a belief that there is no defence to the claim
Before moving to the leave to defend arguments, I pause to note that the hearing of the application extended over five days spread between July and November and occupied the equivalent of about three full hearing days. When the application was first brought on for hearing the plea was that the implied term was for further progress claims "until the Works reached practical completion" and the plea went on to say that practical completion was reached on 2 March 2005 and progress claim 6 was issued on 11 March 2005. Clearly the claim did not fall within the ambit of the term alleged, but nonetheless a manager of the plaintiff swore an affidavit deposing to a belief that there was no defence to the claim. When the futility of the pleading and application was recognised during the course of the hearing there was a delay whilst the plaintiff considered amending the statement of claim. Amendments were eventually made and the new plea was verified by the manager.
For a term to be implied in the circumstances claimed it must be a term which is clear and so obvious that it goes without saying. Yet the fact that the plaintiff was not able to satisfactorily draft the alleged obvious term at first attempt did not deter it in persisting with the summary judgment application. The plaintiff's manager was willing to swear a second affidavit based on the new statement of claim deposing to a belief that there was no defence.
Had the affidavit been drafted in more specific terms and in particular drafted in terms that the manager believed that the term was so clear and obvious that it went without saying it may have been that the manager would not have felt in a position to depose to a belief that there could be no reasonable doubt that the plaintiff was entitled to judgment on the claim as pleaded. I do not suppose that the manager was dishonest in making his oath nor do I suppose that he failed to do the best he could to inform himself sufficiently to personally form a view on a matter of law. I do, however, comment that in cases where success on a summary application is dependent upon the determination of a question of law in favour of the plaintiff there may be merit in altering the existing practice so that where the plaintiff is represented the plaintiff's solicitor should certify to the Court that the point of law has been carefully considered and that he or she holds the belief that there is no reasonable possibility of the point being determined adversely to the plaintiff. In addition, I think that there would be merit in imposing a further requirement that if the solicitor at any time after the filing of the application and before its determination ceases to hold the required belief that the opponent and the Court be notified. When consideration is being given to bringing applications of this kind the prospective deponent of the applicant's affidavit and the solicitor should keep firmly in mind the words of Lord Halsbury in Jones v Stone (supra) which were approved by the High Court in Clarke v Union Bank of Australia Ltd (supra) and Fancourt v Mercantile Credits Ltd (supra). I repeat what Lord Halsbury said at 124:
"The proceeding established by that order is a peculiar proceeding intended only to apply to cases where there can be no reasonable doubt that a plaintiff is entitled to judgment …".
Here, the matter of whether it was clear that the plaintiff is entitled to judgment went beyond the contents of the statement of claim as verified in the applicant's affidavit. An affidavit had been filed and served on behalf of the defendant. In that affidavit the defendant's representative swore to the truth of some facts forming part of the factual matrix which existed at the time the contract was entered into. In particular, the defendant's representative said in his affidavit that before the contract was signed he had told the plaintiff's manager that 37 of the 38 villas had been presold with completion of the sales in each case to occur within 14 days after the issue of a separate stratum title. Coupled with this affidavit was the fact that the parties before signing the standard form contract altered the standard form definition of "practical completion" to add as a requirement that "the Hobart City Council have issued a 'Certificate of Occupancy'", The construction and payment schedule was written in by the parties so that between progress claim 2 and the time for progress claim 3, certificates of occupancy for 29 of the 38 units were to have issued and between progress claim 3 and progress claim 4, certificates of occupancy for the other 9 units were to have issued. The material was enough to make it apparent that the commercial expectation of the plaintiff receiving payments at regular intervals in the event of an overrun may have differed from the commercial expectation of the defendant which might have been that payments after the first two were based on the defendant's holding costs being diminished if not exhausted by the time further claims could be made with such claims to be met out of villa sale income. In this light the potential significance of the qualification of the words in the item 14 payment schedule with the words "or as otherwise agreed by the parties" perhaps ought to have been easily recognisable as an indication, at least from the defendant's point of view, that if there was an overrun the defendant expected further negotiation to occur as to any revised payment schedule. It is difficult to see how in this context the plaintiff could have maintained its position that there was no reasonable doubt that the implied term argument would be determined in the plaintiff's favour.
No doubt the plaintiff's solicitor may disagree with this decision, but that is an entirely different matter from holding an opinion that on a proper analysis of the law only one conclusion was open, namely, that the plaintiff would inevitably succeed in the action.
The leave to defend arguments
I now turn to the leave to defend arguments advanced by the defendant which were as follows. Firstly, that even if the term was implied progress claim 6 was submitted 52 days after progress claim 5 whereas the other claims had been spaced roughly three months apart and so a triable issue is whether or not progress claim 6 had been submitted after a reasonable interval. Secondly, even if the term alleged was implied the term had been superseded by a variation to the contract payment schedule. Thirdly, that the unpaid claim being claim 6 having been submitted after the date which the plaintiff asserts was the date of practical completion must be regarded as a final claim and the making of a final claim was not authorised by the contract until after a six month defects liability period had expired. Fourthly, that the clause which makes progress claims recoverable in full in the event that a progress certificate does not issue within fourteen days is without effect. Fifthly, the amount in dispute includes a significant component for non-approved variations and under the contract progress claims could not be made for variations prior to their approval. Sixthly, that the defendant has a claim for liquidated damages which may be set-off against the plaintiff's claim.
The leave to defend arguments 1 - 4
According to the statement of claim progress claim 5 issued on 18 January 2005 and progress claim 6 issued on 11 March 2005. The time interval between the two claims was 52 days. The term which the plaintiff asserts should be implied specifies that progress payments could be submitted at "reasonable intervals". The defendant says that it is arguable that 52 days is not a reasonable interval and hence leave to defend should be given on this ground. The defendant has put forward no facts which might tend to show that the submission of the last progress claim at about the time of practical completion was unreasonable in the context of what the parties had originally agreed. The written agreement provided for the last progress claim to be made at about the time of practical completion and the written schedule in item 14 had an interval of only 47 days between the last and the second last progress claims.
The defendant has presented evidence in support of a contention that the works are yet to reach the stage of practical completion, but even if this evidence was accepted at trial it would not in my opinion follow, if the term was to be implied, that progress claim 6 did not have to be dealt with. The written contract, cl 23.1, provides in part:
"An early progress claim shall be deemed to have been made on the date for making that claim."
If three monthly intervals were reasonable, by the time the writ issued on 20 April 2005, a little over three months had passed since the issue of progress claim 5. I conclude that the fact that the interval between progress claim 5 and progress claim 6 was 52 days does not give rise to any issue or question that ought to be tried. It is clear that if progress claim 6 was authorised by the alleged implied term it had to be dealt with at some time. I would not have given leave to defend on this point.
The defendant claims that if the term asserted is implied the contract was varied so as to negate the operation of that term. A finding that there was such a variation is not open even if the defendant's evidence about the matter was to be accepted at trial. The agreement which the defendant relies upon is set out in the affidavit from its representative at pars11 and 12 which are as follows:
"That on a date not now remembered by me, but at about the time the defendant received the plaintiff's progress claim number 4 on or about 19 October, 2004 I met with the plaintiff's manager for southern Tasmania, John Bannon to discuss the Works. Mr Shepard was in attendance at that meeting. The meeting was at the plaintiff's office premises in Battery Point.
That during the meeting referred to in paragraph 11 above Mr Bannon advised me that the Works would be completed prior to Christmas, 2004. He also told me that the plaintiff was worried that the defendant might make a damages claim against it for its delay in completing the Works on time. I told Mr Bannon that the defendant would not make a damages claim if the plaintiff finished the Works prior to Christmas and issued just one final claim after the Works were completed so that the defendant could pay for the balance of the Works from sale proceedings from the yet to be completed villa units. Mr Bannon agreed to that."
The defendant does not allege that the plaintiff agreed not to submit any further progress claims. All that is alleged is that the parties agreed that in the event that the villas were completed by Christmas 2004 and no further progress claims were made prior to completion the defendant would not pursue a potential claim for damages for late completion. The alleged agreement giving rise to no possible ground of defence I would not have given leave to defend on this point.
The sixth progress claim which according to the statement of claim issued on 11 March 2005 was submitted shortly after the time when the plaintiff alleges the works had reached practical completion, namely, 2 March 2005. The defendant says that the claim should arguably be treated as a final claim and when so treated it is obvious that the claim was premature as under the contract a final claim was not to be submitted until after the expiry of a six month defects liability period and even on the plaintiff's case, claim 6, and the issue of the writ occurred well before the defects liability period could possibly have expired.
This argument is without merit. As pointed out earlier in these reasons the parties in their written agreement linked the time of progress claim 4 (subject to the timely issue of building approvals) to the date of practical completion. The parties also agreed that progress claims would be for the value of the work authorised under the contract and variations directed by the defendant to the date of the progress claim. The contract then went on to provide that within 28 days after the expiry of the defects liability period the plaintiff was to give to the defendant a final claim endorsed with the words "Final Payment Claim". Pursuant to the contract cl 23.3, a final certificate issued in connection with the Final Payment Claim was to be conclusive evidence of accord and satisfaction except in relation to some specified matters including "any defect or omission in the Works or any part thereof which was not apparent at the end of the defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate". Progress claim 6 is simply not capable of being interpreted as the "Final Payment Claim" under the contract and I would not have given leave to defend on this point.
Next it was submitted on behalf of the defendant that even if progress claims 5 and 6 were authorised, as they had not been certified for payment under the contract no payment obligation has arisen.
The contract, cl 23.2 includes:
"Within 21 days after receipt by the Principal of such a progress claim, the Principal or the Contractor, as the case may be, shall pay:
(a)the amount certified, if the Principal has issued a progress certificate with respect to the progress claim; or
(b)the amount of the progress claim, if the Principal has not so certified."
Item 14 of Annexure Part A to the contract which sets out the schedule for progress claims includes at the end the following:
"Progress claims will be due and payable 14 calendar days after the issue of a legal tax invoice at the times herein indicated."
On behalf of the defendant it was submitted that the two provisions are in conflict and accordingly that it is arguable that the 21 day deeming provision contained in cl 23.2 is rendered nugatory by the specific 14 day time for payment obligation contained in item 14.
Clause 23.2 deals with several matters including the time for certification; the effect of a failure by the Principal to certify and the time for payment. The first two of these matters concern the ascertainment of the amount to be paid and the last concerns the time for payment. The confusion only arises as to the last matter. The sentence added at the end of item 14 is inelegantly drafted, but to construe it as negating the clause which deals with progress claim certificates actual or deemed would be to apply a construction that would undermine the commercial nature of the agreement in a critical respect. There is no sufficient basis when the contract is looked at as a whole to justify such a construction and I would not have granted leave to defend on this point.
Leave to defend – The unapproved variations argument
The fifth basis upon which the defendant submitted that it ought have leave to defend, at least for a substantial part of the claim, was that the principal amount in dispute being about $540,000, consists predominantly of unapproved variations totalling about $445,000. The defendant's director in his affidavit says that of 95 variations claimed by the plaintiff 27, for which the plaintiff claims $444,973.47, have not been approved.
The contract provided in cl 23.1 that each progress claim:
"… shall include details of the value of the WUC done and may include details of other moneys then due to the Contractor pursuant to the provisions of the Contract."
WUC or work under the contract is defined in the contract in interpretation cl 1 as including:
"… the work which the Contractor is or may be required to carry out and complete under the Contract and includes variations …".
Clause 22.1 provides:
"The Contractor shall not vary WUC except as directed in writing.
The Principal before the date of practical completion, may direct the Contractor to vary WUC or execute additional work but such variation shall be of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract."
Progress claim 6 was not certified by the defendant and so the plaintiff's claimed entitlement to payment hinges not only on the alleged implied term, but also on cl 23.2, the relevant part of which I have set out earlier.
On behalf of the defendant it was submitted that uncertified progress claims are only payable under the contract to the extent that they contain claims which can properly be the subject of a progress claim. Progress claims, within the meaning of the contract, for variations can only comprise variations under the contract, that is to say, variations directed by the defendant.
The deponent of the plaintiff's affidavit admitted in cross-examination that progress claim 6 includes claims for a number of unapproved variations. I set out below part of the exchange with counsel:
"Thank you. So that in fact the practical means, rather than trying to chase him around town and getting him to sign bits of paper, the practical means that you employed or Gunns employed to overcome or circumvent the lack of certification or approval was to bill him for them?……That is correct.
And to try and get payment out of him?…..That is correct.
Because if he pays then that’s probably the most clear cut means of approval that you can think of?…..Correct.
But of course the difficulty here is this isn’t it there are - let’s not worry about the value of them yet, there are works that are the subject of your progress claims that are variations that have not been approved by Mr Gregson and remain unpaid?……That is correct.
They have the status, or those items have the status, of non approved variations?…..That is incorrect in that Mr Gregson, as I have previously stated, has approved some variations and now in his notice of dispute is disputing their approval.
Can I just get you to focus your mind upon, and I don’t want to get bogged down in detail here, can I get you to focus your mind upon a variation that has not been approved by Mr Gregson?…..Just to mention bitumen or - -
Fine, let’s go for - as long as it’s a fact status?…..Yeah, amended roadways to concrete instead of bitumen.
Okay. So that’s not been subject to approval by Mr Gregson?…..It’s been submitted to Mr Gregson and he has not approved it.
Thank you. That still forms part of progress claim number six, am I correct?…..A portion of it, yes.
So that in respect of that item you are seeking in these proceedings to obtain a judgment in respect of the cost of a variation that has not been the subject of approval by Mr Gregson?…..This application we have submitted a progress claim to Mr Gregson which includes variations that aren’t approved and Mr Gregson has not given a certificate for that progress claim and we are seeking payment of that progress claim because he’s not issued a certificate.
…..
That is the case though isn’t it, progress claim number six is largely comprised of variations which are the subject of dispute as to whether they’ve been approved or not?…..A portion of that claim is and a portion of that claim also includes works under contract, base contract works, which Mr Gregson still hasn’t paid.
What portion of the claim is subject or is referable to disputed variations, disputed in the sense that Mr Gregson says they’re not approved, do you know?…..Not the actual figures off the top of my head."
The plaintiff's statement of claim includes no plea that there is an entitlement to payment for work going beyond the contract on the basis of a duty to make restitution for unjust enrichment. Pavey & Matthews Pty Ltd v Paul (1986 - 1987) 162 CLR 221. The claim is purely that a payment obligation arose under the contract because the unapproved variations were the subject of uncertified progress claims.
The contract does not recognise progress claims other than for "the value of the WUC done" and other money "then due … pursuant to … the Contract". Unapproved variations fall within neither category and, accordingly, insofar as progress claim 6 included claims for unapproved variations those were not claims which the defendant was required to assess and certify and so were not claims which were deemed by the effluxion of time to have been assessed and certified as submitted. The plaintiff, if it wishes to proceed to recover compensation for the value of non-approved variations it must sue, not for money due under the contract, but on a cause of action for restitution for unjust enrichment. Alternatively, the plaintiff could have and still can take the action set out in the contract cl 27.1 which includes the following:
"If a difference or dispute (together called 'a dispute') between the parties arises in connection with the subject matter of the Contract, including a dispute concerning a claim …
…
(c) for restitution based on unjust enrichment …
then either party shall, by hand or by registered post give the other a written notice of dispute adequately identifying and providing details of the dispute."
The contract goes on to provide that following a notice of dispute the parties are to confer in an endeavour to resolve the dispute and if the dispute remains unresolved it is deemed to have been referred to arbitration.
I would have given leave to defend to the extent of the amount including interest claimed which the defendant asserts comprises the value of unapproved variations.
Leave to defend – The claimed entitlement to set-off liquidated damages for late completion
The last basis upon which the defendant says that it should be given leave to defend is a claimed entitlement to set-off liquidated damages for late completion of not less than $157,345.45. The defendant says that the set-off can be made under the contract against a progress claim or, alternatively, that the set-off can be made in the plaintiff's action either at law, pursuant to principles of equity or under the Rules of Court.
The defendant's representative in his affidavit alleges that 34 of the 38 villas were completed late even after making allowances for council delays and weather delays. It is further asserted that some of the site works have still not been completed so that liquidated damages continue to accrue. The plaintiff does not submit that the claim for liquidated damages is unsustainable, but confines its submission to the proposition that no set-off is available in the present action.
The contract, cl 20.5, is as follows:
"If WUC does not reach practical completion by the date for practical completion, liquidated damages in item 11(a) shall be due and payable to the Principal for every day after the date for practical completion to and including the earliest of the date of practical completion or termination of the Contract or the Principal taking WUC out of the hands of the Contractor, the amount of liquidated damages as determined by a representative of the Institute of Arbitrators and Mediators, will be due and payable at the next occurring progress claim and may be deducted by the Principal from that claim."
Clause 20.5 authorises the deduction of liquidated damages by the principal "at the next occurring progress claim", but specifies that the amount of liquidated damages which is to be paid or which may be deducted is to be "as determined by a representative of the Institute of Arbitrators and Mediators". The defendant does not suggest that the question of the amount of any liquidated damages has been referred to and determined by a representative of the Institute and so no set-off entitlement has yet arisen under the contract.
Mr Sealy, for the plaintiff, submitted that the parties, by conditioning the right to set-off liquidated damages with the requirement that there first be a determination of the amount by a representative of the Institute of Arbitrators and Mediators, had agreed that no set-off at equity or otherwise was to occur until there had been that independent determination.
In L U Simon Builders Pty Ltd v H D Fowles (1992) 2 VR 189, Smith J said at 196:
"The defendants argue that it should be open to them in proceedings in a court brought to recover amounts due under progress certificates, to set up a cross-claim by way of set-off and counterclaim for liquidated damages which could have been dealt with under cl 10.14 and 10.15 and deducted by the proprietor from amounts certified under that procedure. I initially considered that there may be an issue to be tried here, but on reflection consider that there cannot be if my earlier conclusion about the construction of the contract is correct. The problem facing the defendants is that the argument is contrary to that conclusion. To succeed, they must show a contract term allowing a deduction from the certified progress payment. The contract in cl 10.14 and 10.15 expressly provides a mechanism whereby the proprietor is allowed to deduct liquidated damages from amounts certified in progress certificates but that procedure has not been invoked. It cannot now be invoked in relation to the progress payments in question.
Finally, the defendants argued that, if I came to the conclusion that the plaintiff was entitled to summary judgment, that judgment should be stayed pending the determination of the cross-claims. I accept that ordinarily, where there is a bona fide counter-claim for an amount not less than the plaintiffs claim, a stay of execution of a summary judgment will usually be ordered until trial of the counter-claim: see discussion in State Bank of Victoria v Parry [1989] WAR 240 at p246. To allow the defendants a stay, however, would be contrary to the agreement between the parties and for that reason I conclude that that remedy also is not available to the defendants. If that conclusion is incorrect, I am nonetheless satisfied that a stay should not be granted in any event for the reasons that follow."
The same conclusion concerning set-offs from progress claims only being available to the extent authorised by the contract has been reached in a number of cases collected in Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215. The most recent case on the point which was drawn to my attention was Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd (2005) VSC 388. There Habersberger J, after reviewing the various authorities confirmed the correctness of the reasoning in L U Simon and Algons.
The contract here provides for progress claims and prompt payment of progress entitlements with late payments attracting interest. It provides in cl 25 for the suspension of work and eventually the termination of the contract if the defendant fails to pay a progress entitlement when due. There was no submission presented on behalf of the defendant that the terms of the present contract differed from the terms of the contracts considered in the cases to which I have referred in any way which would make the reasoning in those cases inapplicable to the present case. Accordingly, I would not have given leave to defend in respect of the defendant's claimed entitlement to set-off liquidated damages.
Conclusion and Order
The plaintiff's claim as pleaded is entirely dependent on there being an implied term authorising the issue of progress claims 5 and 6. On the matters pleaded in the statement of claim the term should not be implied and, accordingly, I have determined that there is no cause of action, in other words, even if the facts alleged are proved there will be no entitlement to relief. The result is that the application for summary judgment must be dismissed. Had I not determined that the application was to be dismissed I would have granted to the defendant leave to defend, but only for that part of the amount claimed which the defendant asserts is comprised of unapproved variations and interest thereon.
The application is dismissed.
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