H Troon v Marysville Hotel and Conference Centre
[2017] VSC 470
•14 August 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING & CONSTRUCTION LIST
S ECI 2017 0162
| H TROON PTY LTD (ACN 120 422 755) | Plaintiff |
| - and - | |
| MARYSVILLE HOTEL AND CONFERENCE CENTRE PTY LTD (ACN 159 582 653) (as Trustee of the Marysville Hotel and Conference Centre Unit Trust) | Defendant |
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JUDGE: | Digby J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 August 2017 |
DATE OF JUDGMENT: | 14 August 2017 |
CASE MAY BE CITED AS: | H Troon v Marysville Hotel and Conference Centre |
MEDIUM NEUTRAL CITATION: | [2017] VSC 470 |
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CONTRACTS – Building Contract – Modified AS2124-1992 – Provision of Security – Performance Guarantee - Clause 5 (as modified) – Unconditional Banker’s Undertaking – Application for interlocutory injunction to restrain recourse to security – Whether serious issue to be tried as to existence of negative stipulation – Beneficiaries unconscionable conduct in seeking recourse – Whether Principal’s conduct in relation to issue of Final Certificate was unconscionable – Operation of Clause 42.8 of the Contract.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Downie | Heinz & Partners |
| For the Defendant | Mr S Senathirajah | King & Wood Mallesons |
HIS HONOUR:
The application
On 13 July 2017 the plaintiff obtained ex parte an urgent interim injunction, in terms restraining the defendant from calling upon or making any demand upon or using an Undertaking by the Westpac Banking Corporation (the Second Undertaking) in favour of the defendant in the sum of $750,000, dated 18 June 2013, or receiving payment in respect of that Undertaking.
By further orders made on 18 July 2017 this court continued the above orders made on 13 July 2017, and further ordered that by 21 July 2017 the plaintiff pay to the defendant the sum of $240,000 plus GST, and that the hearing of the plaintiff’s application was further adjourned to 1 August 2017.
The underlying proceeding
By Originating Motion dated 14 July 2017 the plaintiff seeks interlocutory and permanent injunctions directed to restraining the defendant, calling upon, making demand upon or using the Undertaking by Westpac Banking Corporation in favour of Marysville Hotel and Conference Centre Pty Ltd in the sum of $750,000 dated 18 June 2013, or receiving payment in respect of that Undertaking.
The facts
The parties have filed extensive affidavit material in support (“the plaintiff’s material”),[1] and in opposition to (“the defendant’s material”),[2] the plaintiff’s application, which in summary present the following:
[1]Affidavit of Steven Troon, 14 July 2017 and exhibits thereto (‘First Troon Affidavit’); Second Affidavit of Steven Troon, 25 July 2017 and exhibits thereto (‘Second Troon Affidavit’); Affidavit of Graham Hills, 31 July 2017 and exhibits thereto (‘Hills Affidavit’) and Affidavit of Paul James Grech, 1 August 2017 (‘Grech Affidavit’).
[2]Affidavit of Graham Fraser, 17 July 2017 and exhibits thereto (‘First Fraser Affidavit’); Second affidavit of Graham Fraser, 28 July 2017 (‘Second Fraser Affidavit’); Third Affidavit of Graham Fraser, 31 July 2017 and exhibits thereto (‘Third Fraser Affidavit’).
(a) On 3 July 2013 the plaintiff entered into a contract (“the Contract”) with the defendant for the construction by the plaintiff of a hotel and conference centre at Murchison Street, Marysville in the State of Victoria (“the Development”);
(b) The Development is owned by the defendant;
(c) The Contract is in the form of an amended Australian Standard AS 2124-1992 contract;[3]
[3]First Troon Affidavit, Exhibit ‘SCT-2’.
(d) WT Partnership (“the Certifying Superintendent”) is the Independent Certifying Superintendent under the Contract, as specified in Annexure A, Item 8. Certification under the Contract, including as to payment certificates (Clause 42), as to practical completion (Clause 35), final certification (Clause 42) and the like, was undertaken by WT Partnership, as Independent Certifier for the Project, appointed by the State of Victoria;[4]
[4]Ibid [9(c)].
(e) Metier 3 is the Non-Certifying Superintendent (“the Non-Certifying Superintendent”) under the Contract, as specified in Annexure A, Item 8. The Non-Certifying Superintendent was engaged by the defendant to provide architectural design services and to act as Superintendent for all matters relevant to that function, except certification under the Contract.[5] Accordingly, Metier 3 is the Non-Certifying Superintendent;
[5]First Fraser Affidavit, [9(b) and (c)].
(f) Under the Contract the Date for Practical Completion was 23 September 2014, as specified in Annexure Part A, Item 34 ( the Date for Practical Completion, as extended, was 15 January 2015);
(g) The Contract provided for the plaintiff to furnish security in the sum of $1.5 million which was satisfied by the plaintiff providing two unconditional Undertakings dated 13 June 2013 from the Westpac Banking Corporation. Each of the two Undertakings were provided in the sum of $750,000;[6]
[6]First Troon Affidavit, Exhibit ‘SCT-4’.
(h) Practical Completion of the Development by the plaintiff builder was achieved on 3 February 2015,[7] as noted above this milestone under the Contract had been extended to 15 January 2015. The first Undertaking in the sum of $750,000 was returned pursuant to Clause 5.7 of the Contract when practical completion was achieved;
[7]Ibid Exhibit ‘SCT-5’.
(i) On 23 July 2015, by the plaintiff’s Invoice 32829, the plaintiff submitted its last payment claim to the defendant in the sum of $15,537.06;[8]
[8]Ibid Exhibit ‘SCT-6’.
(j) Under the Contract, Annexure A, Item 41, the Defects Liability Period was of a duration of 12 months, ending on 3 February 2016;
(k) The plaintiff asserts that on 18 February 2016 it submitted its Final Payment Claim in the sum of $14,124.60.[9] The plaintiff’s letter of that date to the Non-Certifying Superintendent attaching the Final Payment Claim, included the following statement:
You will be aware that practical completion for this project was attained on 3 February 2015, with the final defects period completed on 3 February 2016. As we understand that all defects have been satisfactorily completed, we therefore request that the final bank guarantee (face value $750,000) be returned to:
H Troon Pty. Ltd.
[9]Ibid Exhibit ‘SCT-7’.
It is to be noted that in the Second Fraser Affidavit the defendant concedes that the Non-Certifying Superintendent did receive the plaintiff’s Final Payment Claim by email dated 18 February 2016.[10]
[10]Second Fraser Affidavit, [7].
The defendant claims however that the Certifying Superintendent, WT Partnership did not receive the plaintiff’s Final Payment Claim, dated 18 February 2016.
Overarching issues in relation to the performance and administration of the Contract
The defendant asserts that from about the end of 2015 through to at least mid-2017 there were substantial defects and uncompleted work items formally notified under clause 37 of the Contract.
The plaintiff complains that the Certifying Superintendent, WT Partnership, did not issue the Final Certificate under the Contract within 14 days of the date of the plaintiff’s Final Payment Claim, which the plaintiff asserts was submitted on 18 February 2016.
The plaintiff also complains that in breach of Clause 23 the Contract the defendant did not ensure that the Superintendent acted as required by Clause 42.8 of the Contract in relation to the issue of a Final Certificate. The plaintiff further alleges that this breach by the defendant “prevented“ the issue of the Final Certificate under the contract and enabled the defendant to attempt access to the security guarantee or as the plaintiff puts it this act of “prevention” by the defendant directly impacted upon the circumstance that the defendant Principal is now seeking to make a demand on the Bank Guarantee.[11] The plaintiff argues that this conduct by the defendant is not only in breach of the Contract, but amounts to unconscionable conduct.
[11]T37.2-7.
The defendant alleges that the plaintiff did not provide its Final Payment Claim of 18 February 2016 to the Certifying Superintendent, WT Partnership, and the defendant also alleges that there were substantial defects in the Works, up to and well past early March 2016 and that because of the existence of those defects, no Final Certificate should issue under the Contract.
On 23 June 2016 the defendant issued an Invoice number 15005, in the sum of $61,875.40, which purported to offset the value of the plaintiff’s Final Payment Claim ($14,124.60) against the defendant’s entitlement to liquidated damages for 19 days of delay ($76,000). Further, the defendant also asserted a right of set-off of the said sum of $61,875.40 under Clause 42.10 of the Contract as moneys due to the defendant.
The plaintiff contends that it is unclear whether the defendant’s Invoice dated 23 June 2016 was intended to be a Final Certificate, because that document was not issued by the Superintendent, but by the defendant itself. However, the plaintiff points out that the defendant’s invoice refers to an entitlement in the defendant to Liquidated Damages for 19 compensable days, in accordance with Clause 35.6 of the Contract, in the sum of $76,000. The plaintiff notes that Invoice 15005 of 23 June 2016 purports to set-off in accordance with Clause 42.10 of the Contract, the sum of the plaintiff’s Final Payment Claim (builder’s invoice 32829), namely $14,124.60, to arrive at the total sum of $61,875.40. The plaintiff also notes that that Invoice (15005) asserts a right to set-off under Clause 42.10 of the Contract. In aid of its argument that it effectively issued a Final Payment Claim the plaintiff notes that Clause 42.10 appears immediately after the provisions of the Contract relating to the issue of the Final Certificate, inferring that the defendant, by issuing Invoice 15005, recognised that a Final Payment Claim had issued.
The defendant’s email of 24 June 2016,[12] attaching Invoice 15005, dated 23 June 2016 stated that:
[12]Ibid Exhibit ‘SCT-8’.
(a) the remaining Security held by the defendant under the Contract, in the sum of $750,000, would be returned in full promptly when:
(i) written evidence to the satisfaction of the Architect that AI-928 has been completed;
(ii) acceptable evidence being a work order/confirmation from the sub-contractor that all recommendations contained in the Firetek Report dated 28 March 2016 have been attended to; and
(iii) all relevant test results, certifications etc (if any) have been provided; and
(iv)confirmation that the contractor who undertook the work warrants the work has been completed, and that warranty is assigned to the benefit of the defendant; and
(v) payment of Invoice 15005 has been received by the defendant, being the commercially agreed set-off between Liquidated Damages payables, and the plaintiff’s “final claim”.
In September 2016 the plaintiff sought to arrange for the payment to the Superintendent in the sum of $61,875.40 referred to in Invoice 15005, in exchange for the return of the Undertaking.
However, the proposed payment of $61,875.40 in exchange for the return of the Second Undertaking did not occur because the plaintiff was informed by the Non-Certifying Superintendent, Metier 3, that the Second Undertaking would not be returned to the plaintiff because of faults identified in the project fire service.
On 12 July 2017 the defendant sought to present the Second Undertaking to Westpac Banking Corporation in Sydney for payment.
Issues between the parties about unresolved defects and related matters
The affidavit material filed by the parties addresses in some detail a number of complaints by the defendant as principal, communicated to the plaintiff builder by Architect’s Instructions issued by the Non-Certifying Superintendent, between about mid-December 2015 and the second half of December 2016 and beyond well into 2017.
From about late 2016 the plaintiff and the Non-Certifying Superintendent under the Contract have focused on Metiers’ concerns including that the fire service throughout the Development failed to achieve and/or maintain required fire service pressures, including the Non-Certifying Superintendent’s concern that the plaintiff’s plumber did not weld the 150mm diameter fire service pipe properly.
The defendant’s ultimate contention and position is that the fire safety system was afflicted with serious defects including being incorrectly welded which, coupled with other failures, severely compromised the original pipework installation and, together with other relevant factors, necessitated the replacement of the underground pipe work/hydrant system.
This and other issues fairly described, are in the nature of outstanding or defective work are referred to in Architect’s Instructions (“AI”), and related communications including, AI918 (5 pump diesel consumption), AI921 (fire services system related issues), AI922 (LED defects), the recommendations contained in the Firetek Report of 28 March 2016, in relation to the satisfaction of the requirements of AI928 (related to the fire service system and the Firetek Report), SD001 (directing the urgent repair of fire services in July 2016); SD002 (replacement of fire service by third parties) in September 2016, and in addition issues which arose between the parties in relation to the plaintiff’s provision of “as built drawings”; as to the defendant’s rectification of the fire services system and also in relation to SD003 (concerning lighting defects notified by Metier 3 in May 2017).
Further, the defendant asserts that extensive deficiencies and failures existed in the LED lighting system including over 200 LED failures and incompatible dimmer LED drivers requiring the replacement of those components.
The defendant asserts that there were defects in the fire system in existence until about May 2017 and defects in the LED lighting system from about February 2016 which are yet unresolved.[13]
[13]First Fraser Affidavit, [90], [103] and [104]; Second Fraser Affidavit, [18(a)], [22(b)] and [23]; Third Fraser Affidavit, [8(d)], [9(a)-(d)], [11] and [12].
Although the defendant’s allegations of defective and incomplete work are traversed by the plaintiff, the affidavit material filed by the parties establishes the arguable existence of serious issues to be tried concerning incomplete and defective work and the defendant’s costs both incurred and estimated in relation to such defective and incomplete work.[14] Those costs, including the defendant’s costs associated with delay (and legal costs), are claimed in the gross sum of $99,797.[15]
[14]Second Troon Affidavit, [78].
[15]Additional explanation of costs incurred by the defendant are detailed in the Third Fraser Affidavit, [15(a)-(f)].
I note in relation to the underlying controversy between the parties about defective and incomplete work that the plaintiff concedes that there are serious issues to be tried in relation to these matters.[16]
[16]T7.11-17.
Serious issues to be tried
Further, on the affidavit material there is also a serious issue to be resolved ultimately in relation to whether WT Partnership, the Independent Certifier to the project appointed by the State of Victoria, received the plaintiff’s “Final Payment Claim” dated 18 February 2016.[17]
[17]First Fraser Affidavit, [15(a) and (b)], [17], [18] and [19]; the defendant initially asserted that it did not, nor did the Non-Certifying Superintendent, receive the defendant’s ‘Final Payment Claim’; First Fraser Affidavit, [12]; The ‘Final Payment Claim’ dated 18 February 2016 was addressed to ‘Mr Paul Bennet, C/-Metier 3, level 3, Q2, 4 Riverside Quay Southbank, Vic. 3006’. This is the address of WT Partnership. The nominated address in the Contract (p 4) for Metier 3 was: ‘Level 4 South Podium office, 717 Bourke Street, Docklands, Vic, 3008’.
There is also a serious issue to be resolved ultimately in relation to the multifaceted questions of fact and, to some degree, law as to the nature and extent of defective and incomplete work required to be attended to and rectified by the plaintiff builder prior to the plaintiff being entitled to the Final Certificate under the Contract and the related question of whether, in the circumstances which existed in February and March 2016, the Certifying Superintendent was obliged to issue a Final Certificate under the Contract.[18]
[18]First Fraser Affidavit, [23], [27]-[105].
Intended recourse to only part of the total present security
The plaintiff argues that the defendant’s attempted recourse to the whole of the $750,000 Second Undertaking, on 12 July 2017, was not only contractually wrongful but also amounted to unconscionable conduct because the defendant knew that its arguable entitlement to security was limited to $498,153.26, at that time.
The defendant’s affidavit material includes statements affirmed by its director, Mr Graham Duncan Fraser,[19] that:
[19]Ibid [108]-[111].
(vi)It was not the defendant’s intention that it would retain the full amount of the Second Undertaking in the sum of $750,000 but rather the defendant intended to use moneys available through recourse to that Undertaking to satisfy the defendant’s costs, expenses, loss and damage as a consequence of the plaintiff’s breaches of the Contract including specifically in respect of the fire safety system defects and the LED lighting system defects.
Mr Fraser affirms at [108] of his first affidavit that at 12 July 2017 the defendant’s intention was to return any surplus moneys to the plaintiff as clarified in King & Wood Mallesons’ letter to the plaintiff’s lawyers dated 14 July 2017.
(vii) The defendant asserts an entitlement to call on the bank guarantees to the extent of $490,153.26 (plus GST) in relation to what the defendant asserts is the costs associated with rectification works and in respect of the defendant’s entitlement to certain liquidated damages.
Subsequently to the defendant’s attempted recourse to the Second Undertaking, on 20 July 2017 the plaintiff electronically transferred funds in the sum of $264,000 into the defendant’s account as required by the Order of Croft J made on 18 July 2017. A further electronic transfer was made by the plaintiff in the sum of $61,875.40 to the defendant’s bank account on 31 July 2017.[20]
[20]Affidavit of Graham William Hills, 31 July 2017.
Although the plaintiff criticises the defendant for attempting recourse on 12 July 2017 to the whole of the Second Undertaking, and for not withdrawing that demand, I consider that the terms of the injunctive orders make by the Court of 13 July 2017 and 18 July 2017, rendered it impractical for the defendant to withdraw the demand presented to Westpac on 12 July 2017 until the Court decided the plaintiff’s present interlocutory application.
The receipt of the Final Payment Claim by the Non-Certifying Superintendent
The defendant’s position is that it was the Certifying Superintendent to which the plaintiff’s Final Payment Claim should have been addressed under Clause 42.7 of the Contract. The defendant also argues that there was no basis for the Contractor to issue the Final Payment Claim on 18 February 2016 because at that time there were significant and material defects which had been the subject of instructions directing rectification which had not been attended to and that while material defects existed, a Final Payment Claim could not be certified and therefore would not be paid. The defendant further submits that the Certifying Superintendent would in any event not certify that works had been completed and would not issue a Final Certificate under the Contract because of unrectified and incomplete work.
In this regard, the defendant’s evidence is that it considered that Mr Stewart of the Certifying Superintendent would not have issued a Final Certificate because he considered that the plaintiff had not rectified to WT Partnership’s satisfaction all of the defects that had been notified by the Principal within the Defects Liability Period.[21]
[21]Second Fraser Affidavit, [12], [15]-[18].
The defendant concedes that the Defects Liability Period was scheduled to expire on 3 February 2016. However the defendant’s evidence is that, as at 3 February 2016, there were a number of serious defects which the plaintiff had been instructed to rectify but which had not been rectified to the satisfaction of the Superintendent.[22]
[22]First Fraser Affidavit, [27]-[35]; Second Fraser Affidavit, [15] and [16].
The plaintiff by answering affidavit joins issue with the defendant in relation to the status of certain items which form part of the defendant’s list of defects, in particular those notified by AI925, 927, 1875.
The defendant’s evidence is, in substance, that if in the circumstances the Certifying Superintendent had purported to issue a Final Certificate, the Principal would have issued a Notice of Dispute pursuant to Clause 42.8 and Clause 47 of the Contract by way of objection.[23]
Conclusion as to defects, incomplete work and issues in relation to the plaintiff’s Final Payment Claim and the requirement for the issue of a Final Certificate
[23]Second Fraser Affidavit, [17].
Given the nature of the interlocutory application before the Court and on the contentions and materials outlined above there are clearly a number of serious issues to be tried in due course in relation to whether substantial items of defective and incomplete works remained unrectified or incomplete in March 2016, and until at least about May 2017, or beyond. These are also serious issues to be tried in due course as to whether the plaintiff in fact effectively served a competent Final Payment Claim on 18 February 2016 and including as to whether, in all the relevant circumstances, the Certifying Superintendent WT Partnership was obliged to issue a Final Certificate under the Contract in about March 2016, or at some other time.
Further, the matters in issue referred to in the last preceding paragraph are inappropriate and impracticable of resolution in the context of the plaintiff’s present application for interlocutory relief.
I do not understand the plaintiff to assert that the issues which I have referred to in the last two preceding paragraphs are not contested on bona fide bases by the defendant. At all events I am, on the present materials, persuaded that the bases upon which the defendant disputes those issues are bona fide and arguable.
Balance of Convenience
Prejudice to the plaintiff
The Affidavit of Steven Troon sworn 14 July 2017 (the First Troon Affidavit) deals with the deponent’s belief that if the defendant is permitted to cash the Second Undertaking it will cause substantial damage to the plaintiff’s reputation because the plaintiff tenders for public works and for medium-to-large sized projects which would require disclosure of such a demand in such tenders by the plaintiff, which in turn would be likely to jeopardise the plaintiff’s prospects of being preferred over other tenderers. The First Troon Affidavit also states that the plaintiff has been operating for 134 years and in that time there has never been a claim or demand made against any of the plaintiff’s Bank Guarantees, a circumstance which is positively promoted by the plaintiff to its clients, and which the deponent asserts significantly contributes to the plaintiff’s reputation. The First Troon Affidavit also asserts that a claim upon the Second Undertaking would be significantly detrimental to the plaintiff’s business reputation.[24]
[24]First Troon Affidavit, [26].
The defendant’s prejudice
The defendant asserts that if prevented from calling upon the Second Undertaking, having at this point paid the sum of $240,000 (plus GST) to the organisation which rectified the fire safety system defects, the defendant will be left in a precarious financial situation given the present and likely short term future trading position of the defendant.[25] In the circumstances the defendant asserts that if it is prevented from calling on the Second Undertaking it would need to arrange for additional financial support for its operations. Further, the defendant asserts that unless it is fully reimbursed in relation to the payment of the costs associated with the rectification of the fire safety system defects, the defendant will be required to report to the State of Victoria in relation to moneys paid in respect of defective works and, although the defendant concedes it would be unlikely, upon reporting such payment the State of Victoria could demand the return of the operating funding it has provided or agreed to provide to the defendant and which in turn underpins the defendant’s already precarious financial position.
[25]Second Fraser Affidavit, [112]-[114].
Plaintiff’s submissions
The plaintiff contends that the circumstances in which a beneficiary to a security will be restrained from recourse to that security, are as follows:
(a) where the beneficiary is acting fraudulently;
(b) where the beneficiary is acting unconscionably in contravention of the prohibition in the Australian Consumer Law; and
(c) where there is a negative stipulation in the contract on calling the security.
Here the plaintiff submits that there is a serious issue to be tried that the defendant is acting unconscionably and also as to whether the defendant is in breach of a relevant negative stipulation in the Contract.
The plaintiff further submits that the degree of satisfaction which in this type of application the Court should require is whether there is a serious question to be tried. The plaintiff concedes that the balance of convenience is to be considered only once it is demonstrated that there is a serious issue to be tried.
In relation to unconscionable conduct the plaintiff submits that unconscionable conduct of the type prohibited by the Australian Consumer Law is relevant. The plaintiff relies upon the prohibitions in both s 20 and s 21 of the Competition and Consumer Act 2010 (Australian Consumer Law}.
The plaintiff further submits that in the context of a performance security the Australian Consumer Law prohibition in respect of engaging in conduct that is unconscionable within the meaning of the unwritten law[26] includes unconscientious reliance upon strict legal rights and serious misconduct on something clearly unfair or unreasonable.
[26]Australian Consumer Law; Plaintiff’s Submissions, 28 July 2017, [4]-[5].
The plaintiff submits that the relevant concept of unconscionability in relation to the prohibition on suppliers/acquirers of goods and services engaging in unconscionable conduct in connection with supply and acquisition, is not limited to conduct that would be unconscionable according to equitable principles. The plaintiff also outlines certain less relevant respects in which it has been held that the application of the relevant consumer protection legislation is not limited to advantage being taken in circumstances of special disadvantage or to protect only the weak, inexperienced and disadvantaged rather than commercial entities.[27]
[27]Boral Formwork v Action Makers [2003] NSWSC 713, [75], [76], [77], [82], [86] and [90].
The plaintiff cites a number of authorities where in their own special set of circumstances courts have restrained demands in respect of security provided under a contract on the basis of unconscionable conduct[28] and also quite properly the plaintiff cites instances where the courts have declined to restrain such demands asserted to be in the nature of unconscionable conduct.[29] In my view none of the cases cited by the plaintiff in its submissions are sufficiently factually analogous to the current matter to provide any significant guidance.
[28]Plaintiff’s Submissions, 28 July 2017, [6].
[29]Ibid [7].
Breach of implied negative stipulation
The plaintiff also argues that the court must construe the relevant provision of the Contract to ascertain whether there is a serious question to be tried as to the circumstances in which Clause 5.5 of the Contract is engaged. However, the plaintiff concedes that a construction of the relevant provisions of the Contract should be undertaken in light of the agreed risk allocation in the Contract.[30]
[30]Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98, [43] and [111].
The plaintiff also argues that attempted recourse to the relevant security must be able to be so characterised, objectively considered, as a claim which is arguable or stronger and is not specious, fanciful or untenable.
The plaintiff further argues that the defendant’s claim, on the whole, to the relevant security in the sum of $750,000, in light of claims which it now seeks to support in the sum of $490,153.26 (plus GST), results in the defendant attempting recourse to security in excess of a justifiable amount. The plaintiff points out that $240,000 (plus GST) ($264,000 in total) was paid to the defendant on 20 July 2017 in relation to the cost of certain defects rectification claimed by the defendant. The plaintiff’s affidavit material also identifies a further $61,875.40 which was paid by the plaintiff to the defendant on 31 July 2017.[31]
[31]Affidavit of Graham William Hills, 31 July 2017, [4] in relation to Liquidated Damages due to the Principal; Exhibit “GWH-3” also foreshadows a further payment of $46,786.00 from the plaintiff to the defendant by 2 August 2017, in relation to the LED lights defect.
The plaintiff submits that Clause 5.5 permits recourse to only that part of the security provided by the plaintiff “to pay for any costs, expenses, loss or damage which the principal claims to have incurred or might in the future incur”. The plaintiff also points out that the terms of the Second Undertaking permit the drawing of only part of the undertaking, as appropriate.
Therefore, the plaintiff submits there is a serious question to be tried in relation to the following issues, namely:
(viii) that the recourse to the Second Undertaking is in breach of Clause 5.5 of the Contract which permits the defendant to make a demand, but limited to the extent of its present or future costs, expenses, loss or damage;
(ix) the demand in question constitutes unconscionable conduct within the meaning of s 20 and s 21 of the Australian Consumer Law because it was for sums that the defendant knew exceeded its entitlement.
Further the plaintiff submits that the defendant’s conduct is unconscionable because the defendant has in substance made a demand on the Contract security which was possible only because the defendant, in breach of Clause 23 of the Contract, failed to ensure that the Certifying Superintendent issued the Final Certificate under the Contract in about early March 2016.
The plaintiff submits that pursuant to Clause 42.8 of the Contract the Superintendent was required to issue the Final Certificate:
(x) within 14 days after receipt of the Final Payment Claim; or
(xi) where there is no Final Payment Claim lodged, the expiration of the period specified for full lodgement of the Final Payment Claim, that is 28 days after the expiration of the Defects Liability Period.
The plaintiff submits that on the basis of the Final Payment Claim being served on 18 February 2016 by the plaintiff contractor, the Final Certificate was required by the Contract to be issued by 3 March 2016.
The plaintiff submits that if there was no Final Payment Claim lodged by the plaintiff (which the plaintiff does not accept), the Final Certificate was required to be issued by 2 March 2016. Neither Superintendent in fact issued a Final Certificate.
The plaintiff submits that Clause 23(b) of the Contract obliged the defendant to ensure that the Superintendent acted within the time prescribed for the Contract.
The plaintiff submits that the defendant failed to ensure that the Certifying Superintendent issued the Final Certificate by either 2 or 3 March 2016.
Based on the plaintiff’s submission that the defendant was obliged to issue a Final Certificate by either 2 or 3 March 2016, the plaintiff argues that had the defendant ensured the issue of a Final Certificate, as it was contractually required to do, the Final Certificate had shown a balance owing to the plaintiff under Clause 42.8 of the Contract, and the Second Undertaking would have been required to be returned to the plaintiff under the Contract.
The plaintiff further contends that if the Final Certificate had been issued when the Contract obliged:
(xii) a Final Certificate showing the balance owing to the plaintiff under Clause 42.8 would have required the Second Undertaking to be returned to the plaintiff within 14 days;
(xiii) alternatively, if the Final Certificate showed a balance owing to the defendant, then under Clause 42.7 of the Contract that balance was required to be paid by the plaintiff and the Second Undertaking was then required to be returned within 14 days of the Final Certificate;
(xiv) if the balance owing to the defendant was not paid, under Clauses 42.10 and 42.11, the defendant had a right to set-off and to claim the amount against the Second Undertaking; and
(xv) the Second Undertaking would likely have been returned in mid-March 2016, either with a deduction made against the Undertaking, or in full if the plaintiff had to pay the stipulated balance owing.
The plaintiff submits that the evidence filed demonstrates that at 2 and 3 March 2016:
(a) the Defects Liability Period had already ended, approximately one month earlier on 3 February 2016;
(b) the LED lighting defects were closed out;
(c) the fire system defect was not a defect at all;
(d) if the Superintendent had issued the Final Certificate on 2 or 3 March 2016 it would either have been in favour of the plaintiff in the sum of $14,124.60, or would have been in favour of the defendant in the sum of $61,875.40; and
(e) the Final Certificate was most unlikely to have included any amount in respect of defects because the outstanding defects were completed by 18 February 2016, and the full extent of the fire system defect was not known at that time.
The plaintiff argues that the defendant has in effect procured the benefit of the Second Undertaking by failing to ensure that the Superintendent issued the Final Certificate, as the plaintiff contends it was required to do, and similarly that the defendant is seeking to access, and then apply, the moneys available pursuant to the Second Undertaking in a way only potentially possible because of the defendant’s own breach of Clause 23 of the Contract. The plaintiff submits that it is unconscionable for the defendant to be permitted to take advantage, in this way, of the existence of a state of affairs that the defendant has brought about.
Furthermore the plaintiff submits that the defendant here seeks to apply the moneys potentially available pursuant to the Second Undertaking to address a latent defect, namely the alleged leaks in the fire system piping, even though that defect was rectified. The plaintiff submits that the purpose of the Second Undertaking was to protect the defendants against defects notified to the plaintiff that were not remedied during the Defects Liability Period.
The plaintiff also submits that given the state of evidence about the fire system defect, the defendant’s claim in relation to that part of the works is excessive and the plaintiff submits that there is a serious question to be tried that the demand by the defendant in relation to this item amounts to unconscionable conduct within the meaning of the Australian Consumer Law.[32] The plaintiff also asserts that there are unexplained aspects of a number of the claims relied upon by the defendant as supporting its access to the security.
[32]Plaintiff’s Submissions, 28 July 2017, [29]-[33].
The plaintiff emphasised in its submissions that a key aspect of its application relates to what it described as the dispute as to whether or not the defendant Principal had breached the Contract by failing to ensure that the Certifying Superintendent issued the Final Certificate which the plaintiff argues was required to be issued pursuant to Clause 42 of the Contract. The plaintiff’s submission, as earlier outlined, is that had the Final Certificate been issued a balance sum would have been payable to the plaintiff and as a consequence the Second Undertaking would have been returned by the principal to the plaintiff contractor.[33]
[33]T12-18.
Further the plaintiff submits that the dispute which it describes in relation to the defendant’s failure to ensure that the Certifying Superintendent issued the Final Certificate is not a dispute which falls within Clause 5.5(a) of the Contract and accordingly is not a dispute of the type which the parties would have had in contemplation when they considered the risk allocation affected by Clause 5.5 of the Contract.
In essence the plaintiff submits that here there is a serious question to be tried as to whether the defendant is in breach of s 23 of the Contract and in relation to the effect of that breach which the plaintiff submits “prevented” the release of the Second Undertaking. It is this dispute which the plaintiff submits is a dispute of a type not contemplated or “within” Clause 5.5 of the Contract.[34]
[34]T6.21-31; T7.1-5.
The plaintiff submits that the parties intended that, pursuant to Clause 42.8, the Second Undertaking would not have been available to the defendant 14 days after the issue of the Final Certificate and therefore Clause 5.5 of the Contract must be construed bearing that position in mind.
The plaintiff also argues that the defendant’s conduct in seeking recourse to the Second Undertaking was unconscionable because it was not only in the nature of a breach of the Contract, namely in failing to ensure that the Certifying Superintendent issued the Final Certificate when it was required to do so, but in addition that breach was one which was coloured by an additional “factor” or “element”, namely that in the events which occurred, the defendant’s said breach of Clause 23 itself enabled the defendant Principal to seek access to the Second Undertaking.
The plaintiff argues that the defendant’s conduct is also coloured by the additional “factor” or “element” that recourse by the defendant was in respect of claims which at the time the defendant knew were in the sum of approximately $490,000 (plus GST) only. The plaintiff contends that Clause 5.5 of the Contract should, on its proper construction, restrain recourse to an amount beyond the extent of the defendant’s claims as identified.[35]
[35]T35.30-31; T36.1-31; T37.1-31 and T38.1-17.
Balance of convenience
On the balance of convenience question, the plaintiff submits that access to the secured moneys in question will likely cause irreparable reputational damage to the plaintiff. The plaintiff adds that it has paid the defendant the amount which the defendant had asserted caused it financial difficulty, namely the disbursement relating to the fire system rectification in the sum of $264,000 (including GST), and that there is no other real prejudice to the defendant which is supported by evidence before the Court. The plaintiff also queries whether a number of items of the cost referred to by the defendant are in the nature of disbursements.[36]
[36]Plaintiff’s Submissions, 28 July 2017, [38].
Finally the plaintiff submits in relation to the evaluation of the potential prejudice to the parties and that potential loss of business which the plaintiff may suffer, were the call on its bank guarantees to damage its reputation, that such loss cannot be adequately compensated for by damages and accordingly the balance of convenience favours the plaintiff in this matter.
Defendant’s submissions
The defendant submits that the plaintiff’s application for an interlocutory order restraining recourse to the Second Undertaking must be considered within an established context in relation to construction contract bank guarantee cases, namely that the parties’ intention as to who shall be out of pocket pending resolution of a dispute is that the party which provides an unconditional bank security intends that the beneficiary of that performance guarantee is entitled to payment of the guarantee sum on demand even if it later turns out that the contractual conditions necessary to have resort to the guarantee are not in fact satisfied.[37]
[37]Defendant’s outline of reply submissions dated 31 July 2017, [5].
The defendant submits that in a contractual situation such as this the general rule is that a court will not grant an injunction to restrain a party from having recourse to a performance guarantee.
The defendant submits that in order to obtain an interlocutory injunction preventing the defendant from resorting to the Second Undertaking in question, the plaintiff must first prove on the balance of probabilities on the evidence adduced on the application that at least one of the three exceptions to the rule referred to in the plaintiff’s submissions, exist.
The defendant submits that in a case such as this it is only after the preliminary issue is established that the usual criteria of showing the existence of a serious question to be tried on the plaintiff’s substantive cause of action (here, an alleged breach of the Contract by the defendant in failing to return the Second Undertaking in about February 2016 after the plaintiff allegedly duly submitted its Final Payment Claim under the Contract on 18 February 2016) and the ascertainment of the balance of convenience, arise to be considered.[38]
[38]Ibid [7].
The defendant submits that Clause 5 of the Contract, construed by reference to relevant circumstances, evinces the parties’ intention that the performance guarantee given by the plaintiff (in the form of the Second Undertaking) was to be the means by which the risk as to who was to be out of pocket pending resolution of a dispute was allocated; the risk was agreed to fall on the plaintiff.
Further, the defendant submits that the plaintiff’s assertion that the defendant has engaged in unconscionable conduct or has breached the Contract is flawed because:
(a) the plaintiff’s submission that the Final Certificate should have been issued by 3 March 2016 and following that the Second Undertaking should have been returned to the plaintiff by mid-March 2016; and/or
(b) the plaintiff’s submission that the defendant is seeking to retain the whole of the $750,000 provided for by the Westpac Undertaking,
are both unsustainable on the evidence put forward in support of this application by the plaintiff;
(c) the defendant submits that the plaintiff was not entitled to the issue of the Final Certificate pursuant to Clause 42.8 of the Contract. In this regard the defendant also notes that the Certifying Superintendent, WT Partnership, did not receive the “Final Payment Claim”;
(d) further, the defendant had notified various defects including in relation to the fire services and LED lighting system, to the plaintiff, pursuant to Clause 37 of the Contract and the plaintiff had not rectified all those defects by 3 March 2016, nor indeed by May 2017, and beyond;
(e) the defendant also relies upon the fact that the plaintiff did not request the issue of a Final Certificate until the point in time when affidavit materials were filed in this proceeding in 2017;
(f) the defendant also seeks to bolster its position by referring to the Certifying Superintendent’s intention not to issue a Final Certificate in any event as a result of outstanding defects. Further the defendant relies on the circumstance that the defendant would have referred disputes about outstanding defects pursuant to Clause 47 of the Contract. The defendant in substance submits that if a Final Certificate was sought the defendant would have objected to such a Certificate pursuant to Clause 42.8 by issuing a notice of dispute under Clause 47 of the Contract.[39]
[39]Second Fraser Affidavit, [17].
Access to whole of Second Undertaking – defendant does not propose to retain the $750,000
The defendant submits that it is disingenuous of the plaintiff to submit that the defendant is seeking to retain the entire $750,000 of the Second Undertaking. The defendant points out that since 14 July 2017 the plaintiff has been aware that the defendant is seeking to assert an entitlement only to the extent of $490,153.26 (plus GST) being the total of its current claims under the Contract.[40]
[40]Ibid [21]-[22].
The defendant’s submissions also join issue with the plaintiff’s contention that the defendant’s costs of rectifying the defective fire system are excessive and that elements of the defendant’s rectification cost in the sum of $490,153.26 are not legitimately claimed.[41]
[41]Ibid [23]-[28].
The defendant submits that all of its claims for rectification, and incomplete work and in respect of liquidated damages fall within the broad terms of Clause 5.5 of the Contract.
Defendant’s balance of convenience submissions
The defendant also submits that in this matter the plaintiff has not established that if the injunction sought is not obtained it would suffer injury for which an award of damages would not be an adequate remedy.
The defendant submits in relation to the plaintiff’s assertion about potential loss of reputation that this claim should be rejected both because the plaintiff’s case in this regard is based on assertion and because the plaintiff agreed to contract in the terms that it did, including by Clause 5.5 of the Contract, and thereby assumed the risk that if a call was made upon the Contract security it would be the plaintiff which was out of pocket.
Further the defendant submits that because it is notorious that disputes are commonly part and parcel of building contracts, the plaintiff should have contemplated that circumstances such as have arisen could well give rise to a call on the security it was required to furnish. Further, the defendant argues that the plaintiff’s assertions that its involvement in such disputation and resultant access to a bank guarantee which it provided would have substantial adverse impacts on its reputation should be regarded with reservation.
The defendant also submits that of the entitlement which it asserts in the sum of $490,153.26 (plus GST) which comprised a sum of $240,000 (plus GST) which the defendant has now reimbursed, the defendant is confronted with claims totalling the remainder of $490,153.26 (plus GST). If the plaintiff obtains the interlocutory injunction which it seeks the defendant will be deprived of the money which the parties contemplated would be accessible pursuant to Clause 5.5 and the Undertakings specifically provided to address costs and expenses of the type, and as contemplated as falling within Clause 5.5 of the Contract.
Considerations
Pursuant to the Contract and in particular the security, retention moneys and performance undertakings provided for in Clause 5, the parties agreed:
Clause 5.5
Clause 5.5 is deleted and replaced with the following:
“The Principal may make a demand on and use any security and/or retention moneys:
(a)to pay for any costs, expenses, loss or damage which the Principal claims it has incurred, or might in the future incur, as a consequence of any act or omission of the Contractor which the Principal asserts constitutes a breach of the Contract by the Contractor;
(b)to satisfy any amount which the Principal asserts is payable by the Contractor pursuant to the Contract;
(c)in the event of:
(i)a termination of the Contract, except where the Contract is terminated by the Principal under Clause 45A; or
(ii)an event described in Clause 44.11 affecting the Contractor; or
(d) as otherwise provided for under the Contract.
The Undertaking by way of “security” provided under Clause 5.2, including in connection with Clause 5.5 of the Contract by the plaintiff, was in the form of two unconditional banker’s undertakings dated 18 June 2013, each in the amount of $750,000.
Clause 5.2 – Provision of security
Clause 5.2 of the Contract states that if it is provided in the Annexure to the Contract that a party shall provide security then that party shall provide security in the amount stated in the Annexure and in accordance with that clause.
Clause 5.5 of the Contract in my view reflects the parties’ intent that by that special condition it is agreed that the Principal may make a demand on or use any of the security sum provided by the plaintiff builder, to pay for any costs, expenses, loss or damage which the defendant claims, as Principal under the Contract, it has incurred, or might in the future incur as a consequence of any act or omission on the part of the plaintiff Contractor which the Principal asserts constitutes a breach of the Contract by the Contractor.
The Principal may also make a demand on and use any of the security provided by the Contractor to satisfy any amount which the Principal asserts is payable by the Contractor pursuant to the Contract.
The terms of Clause 5.2 are broad and enabling in relation to the Principal’s recourse to the security provided by the Contractor. The language of the clause makes that plain enough by specifying that the Principal may “make a demand on and use any security” in order to “pay for any costs, expenses, loss or damage which the principal claims it has incurred, or might in the future incur”.
It is indicative of the enabling intent of Clause 5.5 that recourse to the Contract security sum provided by the Contractor is provided for including whenever the Principal claims such financial impost on it might occur in the future.
However, Clause 5.5 qualifies the Principal’s claims by providing that the subject claims are claims for cost, expense, loss or damage incurred or which might be incurred in the future as a consequence of any act or omission of the Contractor which the Principal asserts constitutes a breach of the Contract by the Contractor. The parties’ express requirement that the Principal’s entitlement to recourse need only be triggered by such “claims” by the Principal, and which the Principal “asserts constitute a breach of the Contract by the Contractor” clearly reflects the parties’ intent that the Principal may access the security without having to establish any relevant breach of Contract by the Contractor or the existence of any relevant extant contractual claim or entitlement in the Principal.
The Contract reflects a scheme and specific intent via Clause 5, including Clause 5.5, to allocate to the plaintiff the risk as to which of the parties to the Contract shall be out of pocket pending final determination of any dispute in respect of any costs, expenses, loss or damage which the Principal claims has been incurred, or which the Principal claims might be incurred in the future, as a consequence of the Contractor’s acts or omissions which the Principal asserts constitutes a breach.
In the above respects the scheme of the Contract, and in particular Clause 5, reflect the parties’ intent that the Principal, as beneficiary of the unconditional banker’s undertakings, is entitled to recourse even in the face of substantial disputation in relation to relevant underlying rights and entitlements arising out of, or in connection with the Contract and notwithstanding that it might transpire that the Principal is not entitled to recover or be compensated for the costs, expenses, loss or damage which it claimed justified recourse at the time thereof.[42]
[42]Fletcher Constructions Australia Ltd v Varnsdorf Proprietory Ltd [1998] 3 VR 812 at 826-827; Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [31].
As a result of the scheme and intent of the parties to which I have referred in these respects, the general approach and rule applied to performance guarantee clauses in construction and engineering contracts should be that a court will not enjoin the beneficiary of the security Undertakings from recourse to such a security, subject to three principal exceptions, namely:
(a) where fraudulent conduct justifies restraining a party in whose favour a performance guarantee has been provided;
(b) in circumstances where relevant unconscionable contravention of the Competition and Consumer Act 2010 (Cth) justifies restraining a party in whose favour a performance guarantee has been provided; and
(c) where the beneficiary of the performance guarantee seeks recourse in circumstances where such recourse constitutes a breach of the beneficiary’s contractual promise not to call on the performance guarantee.[43]
[43]Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [138]; Clough Engineering Limited v Oil & Natural Gas Corporation Limited (2008) 249 ALR 458.
The undesirable concomitant consequence of departing from the usual approach and application of the rule to which I have referred is that by restraining recourse to a performance bond pending trial in relation to issues in dispute related to recourse will usually, in effect, afford final relief by deferring the principal benefit intended to be secured by the performance guarantee contrary to the intent and the fundamental bargain of the parties in relation to access to security and contrary to the parties’ agreement as to the commercial allocation of risk as to this aspect of the Contract.
Further, in construing provisions of typical construction and engineering contracts in relation to the provision of security and recourse to such security the Court should take into account the commercial purpose served by such agreements and not too readily favour a construction which is inconsistent with the parties’ agreed allocation of risk as to which party would be out of pocket pending resolution of disputes, under the Contract and accordingly clear words are required to support a construction that inhibits a beneficiary’s access to security where the beneficiary is, as in this instance, alleging breach in good faith.[44]
[44]Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [138(3), (4) (second appearing)].
Further, there are additional indicia that in this instance the scheme of Clause 5, including 5.3 and 5.5 of the Contract, support a construction which reflects the parties’ intent that the relevant Undertakings provided by the plaintiff effectuated the allocation of risk in this case on the plaintiff pending resolution of any relevant dispute. Those indicia include that Clause 5.3 requires that the performance guarantee to be provided be provided in “unconditional” form and further, the form of performance guarantee referred to in Annexure Part A (page 13) provides that the bank “… unconditionally undertakes to pay on demand…”. The plaintiff provided guarantees which were in accord with these requirements.
The contract also specifies a form of undertaking and the Undertakings actually provided specify that payment by the bank is to be made “on demand” accompanied only by such a demand in writing by or on behalf of the defendant and “without reference to the [plaintiff]”.
For these reasons I reject the plaintiff’s contention that there is any relevant contractual constraint on recourse to the subject Undertakings, either express or implied or in relation to the Contract including Clause 5, special Clause 5.5 and those parts of the Contract Annexure to which I have made reference.
Alleged unconscionable conduct
As earlier noted, on this part of its application the plaintiff acknowledged during the course of argument that there is a serious question to be tried as to whether or not there were defects extant as at February and March 2016.[45]
[45]T16-17.
The plaintiff does not ultimately argue that there is a dispute between the parties as to whether all formally notified defects and omissions had been addressed by it as Contractor at the date when the plaintiff asserts the defendant should have ensured that the Certifying Superintendent issued a Final Certificate, namely either 2 or 3 March 2016.[46]
[46]T11-17
Further, and in any event, on the material to which I have earlier referred in some detail, in the present interlocutory context, I am satisfied that the parties were engaged in bona fide and substantial disputes in relation to items of defective and incomplete work forming part of the Works, throughout February and March 2016, and probably to at least May 2017.
Here the plaintiff submits that there is a serious question to be tried that the defendant’s demand for recourse amounts to unconscionable conduct because it has made a claim for amounts it knew, and knows, it was not entitled to.[47]
[47]Plaintiff’s Submissions, 28 July 2017, [14(b)].
I am not persuaded that at the date of attempted recourse the defendant made “a claim” for amounts that it knew it had no entitlement to.
On the contrary I am satisfied that at all material times the defendant had reasonable bases upon which to assert that the plaintiff had breached the Contract by failing to attend to formally notified defective and incomplete work forming part of the Works and that similarly the defendant had reasonable bases upon which to make a claim and assert costs, loss, expense and damage and also loss and damage quantified contractually by way of liquidated damages in the overall sum of approximately $490,000 thereby justifying its attempted recourse to the remaining Second Undertaking pursuant to Clause 5.5 of the Contract in July 2017.
The defendant’s attempted recourse was further contractually justified by its claim and assertion at the time of recourse that certain defects in the Works remained defective or incomplete. As highlighted, Clause 5.5 encompasses any costs, expense, loss or damage which might in the future be incurred. Recourse under Clause 5.5 does not require the establishment of breach or the existence of either a relevant entitlement or extant contractual claim.
On the basis of my conclusions above concerning the justification and reasonableness of the defendant’s position disputing whether the plaintiff had attended to all defective and outstanding work as required by the terms of the Contract, up to and after March 2016, I also find on the present material that the defendant bona fide disputed the plaintiff’s satisfactory completion of the items of work in issue. Accordingly, in relation to the issues in respect of defects and incomplete work I reject that the defendant has conducted itself in any way which could be described as constituting serious misconduct, or clearly unfair or unreasonable conduct in relation to the plaintiff.
Further, very shortly after the date of attempted access to the Contract security, on 14 July 2017 the plaintiff was informed by the defendant that the defendant asserted an entitlement to call on the banker’s undertaking in the amount of $490,153.26 (plus GST) in respect of the current claims under the Contract and the defendant further unequivocally communicated that it did not assert an entitlement to any further amount at that point of time. I refer also to my observations and conclusions at paragraphs [29] and [30] above.
In support of its application for an interlocutory injunction on the basis of the defendant’s unconscionable conduct, the plaintiff also argued that additional factors existed in this case which transformed what would otherwise be common or garden contractual disputation between a Contractor and a Principal in relation to the Contractor’s entitlement to a Final Certificate, and related disputes, into unconscionable behaviour by the defendant. These factors were asserted by the plaintiff to be that:
(a) the Principal’s breach of Clause 23 of the Contract was a “form of prevention” which in turn resulted in no Final Certificate issuing as the plaintiff contends it should have under Clause 42.8 of the Contract. The plaintiff submits that the defendant’s conduct in that regard unconscionably enabled the defendant to make a demand on the bank guarantee;[48]
(b) the defendant made an unconscionable demand on the bank guarantee in circumstances where it knew that claims extended only to approximately $490,000 (plus GST).[49]
[48]T35.30-31; T36.1-31 and T37.1-12.
[49]Described as a ‘separate and alternative argument’ (T37.10-31; T38.1-17).
Clause 23 of the Contract provides that inter alia:
23.The Principals shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract as a certified, the Superintendent –
(a)acts honestly and fairly;
(b)acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time;
…
I do not accept that there is any present basis upon which to conclude that the defendant has unconscionably breached Clause 23 of the Contract and, in a consequential way, via the Certifying Superintendent, breached Clause 42.8 of the Contract in relation to the Certifying Superintendent’s obligation to issue a Final Certificate.
On the affidavit material before me, as earlier specifically identified, it appears to be the position that the Certifying Superintendent at no stage received the plaintiff’s “Final Payment Claim”. Accordingly, the plaintiff is not in a position to convincingly assert that:
(a) it was entitled to the issue of a Final Certificate on 2 or 3 March 2016, or indeed on any other date;
(b) that the defendant has breached Clause 23 in relation to the obligations of the Certifying Superintendent, pursuant to Clause 42.8 of the Contract.
Further, at the time of the plaintiff’s “Final Payment Claim” on 18 February 2016, and for at least some considerable time thereafter, the parties continued to be in substantial dispute about unrectified defects and unperformed work. The defendant’s evidence affirms this position and further affirms that the Certifying Superintendent, WT Partnership would not have issued a Final Certificate to the plaintiff Contractor pursuant to Clause 42.8 of the Contract, at or after 18 February 2016 because in the Certifying Superintendent’s view substantial defects remained unaddressed pursuant to formal notification under Clause 37 of the Contract. The exhibited Architect’s Instructions and related communications from the Non-Certifying Superintendent, Metier 3, establish that this was also the Certifying Superintendent’s position.
Finally, Clause 42.8 of the Contract provides for the effect of a Final Certificate, if issued.
However Clause 42.8 in part provides:
Unless either party, either before the Final Certificate has been issued or no later than 15 days after the issue thereof, serves a notice of dispute under Clause 47, the Final Certificate shall be evidence in any proceedings of whatever nature and whether under the Contract or otherwise between the parties arising out of the Contract, that the Works have been completed in accordance with the terms of the Contract and that any necessary effect has been given to all the terms of the Contract which require additions or deductions to be made to the Contract Sum (say for certain exceptions which are not here relevant).
Accordingly, the plaintiff’s assertion that the defendant has unconscionably failed to ensure that the Certifying Superintendent issued a Final Certificate to the plaintiff on or about 2 or 3 March 2016, appears on the material available to me in this interlocutory application to be unlikely in any event to have been causative of the non-issue of a Final Certificate by the Certifying Superintendent because even if a Final Certificate had issued (which the evidence referred to affirms was improbable in the circumstances) the defendant was entitled to challenge that Final Certificate by issue of a Notice of Dispute under Clause 47, which in turn would have interdicted the release pursuant to Clause 42.8 of the Contractor’s security provided by the Second Undertaking.[50]
[50]Second Fraser Affidavit, [17].
In relation to the plaintiff’s second argument as to why the defendant’s conduct was unconscionable, concerning the defendant’s attempted access to more than the sum of its quantified claims I also find the plaintiff’s arguments unpersuasive because of the matters referred to at [108] and [109] above and because of the broad enabling terms of Clause 5.5 including in relation to possible future claims[51] and because the defendant from very soon after attempted recourse made clear that it sought to draw down only $490,153.26.[52]
[51]Reasons for Judgment [108] and [109]; First Fraser Affidavit [104] and Second Fraser Affidavit [22(d)] and [23].
[52]Reasons for Judgment [29], [30] and [110]; First Fraser Affidavit [106-[110] and fn [53] hereof.
Further, I do not consider that the defendant acted unreasonably or unconscionably immediately after attempting recourse by not withdrawing its earlier notice of demand for the entire security because of the matters referred to in the last preceding paragraph and because after the first interim order in this matter on 13 July 2017, it was impractical or at least likely to be difficult for the defendant, in face of the court interim restraining order, to withdraw the demand made to the Westpac Bank in Sydney on 12 July 2017, or modify that demand to relate only to a sum of $490,153.26.[53]
[53]After 12 July 2017 the plaintiff acknowledged some substantial indebtedness to the defendant and repaid. Refer Reasons for Judgment [29] and [30].
For these reasons I am not persuaded that the disputes which were being agitated between the parties in 2015–2016 through to at least the middle of 2017 to which I made earlier detailed reference, are other than the sort of foreseeable common disputations which the parties are likely to have contemplated might arise and in respect of which I consider Clause 5.5 was intended to operate pursuant to its terms. I also note that the breadth of the submission in the Contract, which is wide enough to embrace the plaintiff’s consumer protection legislation related complaints, also supports this construction.[54]
[54]Contract Clause 47.
Further, for the reasons I have explained, I do not accept that any additional factor or circumstance exists which transformed, or arguably transformed, the defendant’s conduct in any respect, including attempted recourse to the full Second Undertaking, to that which could or might be characterised, as unconscionable conduct of the type asserted by the plaintiff because of the broad terms of Clause 5.5, including in relation to possible future claims.
Accordingly, for the above reasons, I reject the plaintiff’s assertions that the defendant has acted unconscionably in relation to the non-issue of the Final Certificate under Clause 42.8 and by attempting to access the whole of the Second Undertaking on 12 July 2017.
I can see no basis on present materials and submissions to conclude that in these respects, and in relation to its obligation under Clause 23 and its rights under Clause 5.5 of the Contract, the defendant either seriously misconducted itself or acted unfairly or unreasonably vis a vis the plaintiff.
Furthermore, I am also not, for the above reasons or otherwise, persuaded that the defendant conducted itself unconscionably for the purposes of the Australian Consumer Law. Rather, I am satisfied that the defendant has conducted itself bona fide and reasonably on the material presently filed in face of typical contractual disputes, as outlined above, and given the likely operation of the relevant provisions of the Contract.
Decision
For the reasons I have outlined I shall dismiss the plaintiff’s application for interlocutory injunctive relief, restraining the defendant from calling upon, making demand upon or using the Second Undertaking by Westpac Banking Corporation in favour of Marysville Hotel and Conference Centre Pty Ltd in the sum of $750,000 dated 18 June 2013, or receiving payment in respect of that Undertaking.
In the circumstances and given my reasons for decision referred to above, it is unnecessary to deal with the balance of convenience related issues.
Orders
I propose to provide the parties with the opportunity to present draft orders and to make any submission they desire as to the form of orders including in relation to costs.
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