Hansen Yuncken Pty Ltd v Parliament Square Hobart; Landowner Pty Ltd (No 2)
[2021] TASSC 20
•31 May 2021
[2021] TASSC 20
COURT: SUPREME COURT OF TASMANIA
CITATION: Hansen Yuncken Pty Ltd v Parliament Square Hobart
Landowner Pty Ltd (No 2) [2021] TASSC 20
PARTIES: HANSEN YUNCKEN PTY LTD
v
PARLIAMENT SQUARE HOBART
LANDOWNER PTY LTD
WOLFERSTAN VERNEY AND PARTNERS PTY LTD
FILE NO: FCA 571/2020
DELIVERED ON: 31 May 2021
DELIVERED AT: Hobart
HEARING DATE: 20 May 2021
JUDGMENT OF: Blow CJ
CATCHWORDS:
Appeal and New Trial – Appeal – Practice and procedure – Tasmania – Powers of court – Other matters – Stay pending appeal – Construction contract – Appeal from determination that proprietor entitled to have recourse to bond – Application for injunction to preserve status quo pending appeal – Injunction refused.
Supreme Court Rules 2000 (Tas), r 676(1).
Aust Dig Appeal and New Trial [392]
REPRESENTATION:
Counsel:
Appellant/Applicant: S B McElwaine SC, A G Rollnik
First Respondent: J A F Twigg QC, K J Naish
Solicitors:
Appellant/Applicant: Crawford Legal
First Respondent: Arnold Bloch Leibler
Judgment Number: [2021] TASSC 20
Number of paragraphs: 29
Serial No 20/2021
File No FCA 571/2020
HANSEN YUNCKEN PTY LTD v PARLIAMENT SQUARE
HOBART LANDOWNER PTY LTD
and WOLFERSTAN VERNEY AND PARTNERS PTY LTD
REASONS FOR JUDGMENT BLOW CJ
31 May 2021
On 25 May 2021 I dismissed an application for an interlocutory injunction that was sought in order to preserve the status quo pending the hearing of an appeal to the Full Court. These are my reasons for that decision.
The appeal arose out of a dispute concerning a major construction project on the Parliament Square site in Hobart. In 2014 the first respondent, Parliament Square Hobart Landowner Pty Ltd ("PSHL") entered into a contract with the appellant Hansen Yuncken Pty Ltd ("HY") requiring HY to undertake the construction work. The two parties have been in dispute as to a number of matters since 2017. In July 2020 HY brought an action against PSHL and the second respondent to the appeal, Wolferstan Verney and Partners Pty Ltd, seeking declaratory and injunctive relief. At that stage, PSHL was holding a "Defects Bond" which took the form of an unconditional banker's undertaking to pay up to $1,731,003 unconditionally on demand. Amongst other relief, HY sought a declaration that PSHL had no present entitlement to have recourse to that Defects Bond, and an injunction restraining PSHL from having recourse to it. On 3 March 2021 Brett J determined, among other things, that PSHL had a present entitlement to have recourse to that bond: Hansen Yuncken Pty Ltd v Parliament Square Hobart Landowner Pty Ltd [2021] TASSC 7. HY has appealed to the Full Court contending, amongst things, that that determination was wrong.
On 31 July 2020 Brett J granted HY an interlocutory injunction which, among other things, prevented PSHL from having recourse to the Defects Bond. After the determination on 3 March 2021, his Honour ordered that that injunction continue in force for a period that expired on 25 May 2021.
On 16 March 2021 HY filed the interlocutory application that came before me. It sought injunctions restraining PSHL, pending the hearing and determination of the appeal, from having recourse to the Defects Bond, and from taking any step to recover a sum of $3.3 million which is the subject of a separate dispute. The part of the application relating to the $3.3 million was abandoned when the application came before me.
Rule 676(1) of the Supreme Court Rules 2000 provides that an appeal "does not operate as a stay of proceedings unless the Court or a judge so orders". HY therefore bore the burden of persuading me that I should grant the injunction that it sought in relation to the Defects Bond, and of adducing evidence of any facts that it relied on for that purpose.
The principal contentions of HY on the application were as follows:
· That its grounds of appeal in relation to the Defects Bond were very strong, and highly likely to succeed.
· That if an injunction were not granted, PSHL would have recourse to the Defects Bond, the amount of the bond would be paid to it, and the appeal would then become nugatory, and liable to be dismissed as hypothetical.
· That if the appeal were not dismissed on the basis of the issues having become hypothetical, but was resolved in favour of HY, there was no readily identifiable mechanism for putting HY back into the position it was in before the calling in of the bond.
· That calling in the bond would cause significant economic loss to HY.
· That calling in the bond would cause significant reputational damage to HY.
· That the injunction, if granted, would operate for a relatively short period.
· That HY had moved quickly in prosecuting the appeal, which was listed before the Full Court for hearing on 1 June 2021.
· That any prejudice to PSHL resulting from delay could be readily addressed by a payment of interest.
· That PSHL had not adduced evidence of any specific prejudice that it would suffer if the injunction were granted.
PSHL contended that the grounds of appeal had no merit, that restitution would be possible if the appeal succeeded, that the parties' contract and the decision of Brett J should be respected, and that to grant the injunction would be "to throw sand into the wheels of commerce".
Arguable case
Clauses 75 and 76 of the parties' contract established a mechanism whereby PSHL could assert that HY had failed to comply with a provision of the contract by serving a "Default Notice" specifying a "Default Event", and, if the Default Event was not remedied within a "Remedy Period", then have recourse to the Defects Bond. PSHL wished to have recourse to the Defects Bond without going through that procedure. HY contended that the terms of the contract did not permit PSHL to have recourse to the Defects Bond without going through that procedure. Brett J rejected that argument and held that PSHL was entitled to have recourse to the Defects Bond without going through the Default Notice procedure. In the Full Court proceedings, HY contends that he thereby erred in law.
In the contract, "Default Event" is defined to include, amongst other things, "a failure by the Contractor to comply with any provision of this Deed or any other Project Document".
Clause 75 of the contract includes the following:
"75 Default Event
75.1 Occurrence of Default Event
If a Default Event occurs, the Principal may give the Contractor a notice in accordance with this clause 75.1 (Default Notice). A Default Notice must:
(a) state that it is a Default Notice under this clause 75.1; and
(b) specify the Default Event.
75.2 Remedy Period
(a) Subject to clause 75.2(b) and clause 75.3, upon receipt of a Default Notice the Contractor must remedy (to the extent that it is capable of being remedied) the Default Event specified in the Default Notice within the Remedy Period."
"Remedy Period" is defined as "the period of 15 Business Days from and including the date of service of a Default Notice and any extended period granted under clause 75.3".
Clause 76 includes the following:
"76 Principal's remedies for Default Events
76.1 Remedies
If a Default Event has occurred and the Default Event is:
(a) capable of being remedied and is not remedied by the Contractor to the Principal's satisfaction (which may include the payment of compensation) within the Remedy Period;
...
the Principal may (in addition to any other Rights under this Deed, any other Project Document or at Law) do any, or a combination of any of, the following:
(e) subject to clause 6, have recourse to any or all of the Performance Bonds and the Defects Bonds for the purpose of paying to the Principal any Performance Bond Secured Amounts".
The contract does not expressly state whether or not PSHL may have recourse to the Defects Bond without going through the Default Notice procedure. HY contends that it may not. PSHL contends that it may.
The Full Court will need to determine that issue by applying the ordinary principles relating to the interpretation of contracts and the existence of implied terms. Their Honours will need to consider whether it is implicit in cl 76 that recourse may not be had to the Defects Bond unless the Default Notice procedure has been followed. In Fletcher Constructions Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 at 827, Calloway JA, with whom Batt J agreed, said in relation to such an issue:
"No implication may be made that is inconsistent with an agreed allocation of risk as to who shall be out of pocket pending resolution of a dispute and clauses in the contract that do not expressly inhibit the beneficiary from calling upon the security should not be too readily construed to have that effect." [My emphasis.]
One factor that weighs in HY's favour is that the contract expressly provides that PSHL may draw down on a "Performance Bond" without notice, but contains no such express provision in relation to the Defects Bond. In accordance with the terms of the contract, Performance Bonds were obtained by HY and delivered to PSHL at an early stage and held by PSHL until the time of practical completion. After practical completion, PSHL held the Defects Bond. Clause 6.4(a)(i) of the contract provides as follows:
"6.4 Call on Performance Bond
(a) The principal may draw down on any Performance Bond at any time without notice if:
(i) the Principal has a bona fide Claim against the Contractor under or in connection with the Contract."
As I have said, there is no corresponding provision as to the Defects Bond.
HY suggests that there is no basis for distinguishing the decision of Austin J in Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158, in which it was held that a clause in a construction contract contained an implied prohibition on the proprietor calling up a security when the clause did not expressly authorise the proprietor to do so.
Having regard to the contractual provisions and authorities that I have referred to, I concluded that HY had an arguable case, and that its grounds of appeal relating to the defects bond could well succeed. I regarded the presence of cl 6.4(a)(i), and the absence of a corresponding clause relating to the Defects Bond, as particularly significant.
Restitution
Section 47(1) of the Supreme Court Civil Procedure Act 1932 provides as follows;
"(1) Subject to the provisions of this Act, a Full Court, on the hearing of every appeal, shall have and may exercise all the jurisdiction, powers, and duties of the Court, whether as to amendment or otherwise, and shall have power to draw inferences of fact not inconsistent with the findings of the jury, if any, and to affirm, reverse, or vary, as to all or some or any one of the parties, any judgment, order, or determination appealed from, and to give any judgment or make any order or determination which ought to have been given or made, and to grant a new trial in any cause or matter in which there has been a trial (whether with or without a jury), and to make such further or other order as the case may require."
"Restitutio in integrum is the right of every successful appellant": Cox v Hakes (1890) 15 App Cas 506 at 547; Commonwealth v McCormack (1984) 155 CLR 273 at 276. The power conferred by s 47(1) "to make such further or other order as the case may require" clearly empowers the Full Court to make orders for the purpose of effecting restitution. Such orders are routinely made in cases where appeals succeed after judgment debts have been paid. Appellate courts routinely order the repayment of money, with interest: Commonwealth v McCormack (above); Burke v Gillett [1996] 1 VR 196 at 201.
If the grounds of appeal relating to the Defects Bond are successful, the situation will be different from the usual situation in two respects. First, any sum paid by the bank to PSHL will not be a final payment, but a provisional payment, to be taken into account in the determination of the parties' disputes, with a view to PSHL not being out of pocket while the disputes are pending. Secondly, any payment to PSHL by the bank will be a payment by a non-party. If and when the appeal succeeds, the bank may have been fully reimbursed by HY, or partly reimbursed, or not reimbursed at all. HY may well have incurred a variety of charges and financial losses including interest and bank fees. However there is no reason to think that the crafting of appropriate orders for restitution might be beyond the ingenuity of the Full Court.
If restitution is to be ordered, issues may arise as to the scope of the orders for restitution, as they did in Idemitsu Queensland Pty Ltd v Agipcoal Australia Pty Ltd [1996] 1 Qd R 26. However the power of the Full Court to "make such further or other order as the case may require" empowers it to make whatever orders by way of restitution are appropriate in the interests of justice.
For these reasons I concluded that if the injunction sought were not granted by me, the appeal would not become nugatory, and would not become liable to be dismissed as hypothetical.
Reputational damage
HY is in the business of undertaking major construction projects. It has offices in five Australian States. The provision of security in the form of performance bonds and defects bonds is routinely required. There was uncontested evidence that HY had a standing arrangement with its bank as to the provision of such securities, and that that arrangement was being renegotiated in July 2020. It is clear that the calling in of a bond has the potential to damage HY's relationship with its bank and its reputation in the construction industry. However I have no evidence as to the fragility or robustness of HY's financial position, its relationship with its bank, or its reputation in the industry.
It is highly likely that the existence of disputes between HY and PSHL are well known to HY's bank, and within the construction industry. The parties have been in dispute for about three years. Their disputes had a previous judicial outing when PSHL unsuccessfully sought to quash an adjudicator's determination requiring the payment of over $5.3 million: Parliament Square Hobart Landowner Pty Ltd v Tonkin [2020] TASSC 30.
I concluded that the calling in of the Defects Bond could well cause some damage to HY's relationship with its bank and its reputation in the construction industry, but I was not in a position to make any finding as to the likely extent of such damage. There was no reason to think that the calling in of this bond might cause more reputational harm than would ordinarily be caused by the calling in of a bond of similar magnitude.
Chronology
From the material before me, it appears that the following events have occurred in the course of the disputes between the parties:
· In August 2018, in the course of long-running without prejudice negotiations, a formal mediation was conducted.
· On 28 June 2019, HY made a progress claim pursuant to the Building and Construction Industry Security of Payment Act 2009. That claim was disputed in accordance with the provisions of that Act. PSHL was willing to pay $2,361.30, but an adjudicator determined, on 9 September 2019, that HY should receive $5,310,449.54.
· PSHL then brought the action which I referred to above, seeking orders that that determination be quashed. On 3 July 2020 Estcourt J dismissed that action: Parliament Square Hobart Landowner Pty Ltd v Tonkin (above).
· About 30 minutes after Estcourt J gave judgment, four letters of demand were sent on behalf of HY to PSHL, demanding the payment of sums totalling a little over $4.7 million by 4 pm on 10 July 2020.
· On 7 July 2020, after further correspondence, PSHL was requested to provide an undertaking that it would not call upon the Defects Bond without first providing HY with 10 business days' notice of its intention to do so.
· After further correspondence, HY instituted the action seeking declaratory and injunctive relief and filed an interlocutory application seeking interlocutory injunctions to preserve the status quo.
· On 31 July 2020, Brett J, amongst other things, granted the interlocutory injunction restraining PSHL from having recourse to the Defects Bond pending the determination of three separate questions pursuant to r 559 of the Supreme Court Rules.
· On 3 March 2021, his Honour determined each of those questions in PSHL's favour. As I have said, he determined that PSHL was entitled to have recourse to the Defects Bond.
· The interlocutory injunction was continued in force by his Honour but, on 13 April 2021, he ordered that it be dissolved, and imposed a stay upon the operation of his orders for a period of six weeks, expiring on 25 May 2021.
· On 16 March 2021, HY filed a notice of appeal in respect of the determinations, together with the interlocutory application that came before me.
· I heard that application on 20 May 2021 and dismissed it on 25 May 2021, reserving my reasons for publication at a later date.
A number of observations favourable to HY may be made in respect of this chronology. First, it is clear that it has moved promptly to bring this matter before the Full Court after the making of adverse determinations on 3 March 2021. Secondly, even if the Full Court takes months to determine the appeal, that will be a relatively short time in the history of the parties' disputes. Thirdly, any calling in of the Defects Bond would amount to a blatant strategy to circumvent the making of an unimpeachable determination by the adjudicator.
To enjoin or not to enjoin?
There are conflicting authorities as to whether special or exceptional circumstances must exist before a stay order is made pending the determination of an appeal. In Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653, Young CJ, with whom Brooking J concurred, reviewed a series of authorities and took the view that a stay of execution was to be ordered only when special or exceptional circumstances existed. There are other authorities, including Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 and A Nelson & Co Ltd v Martin & Pleasance Pty Ltd (No 2) [2021] FCA 242, which stand for the proposition that an applicant needs only to demonstrate a reason or an appropriate case to warrant the granting of a stay. I concluded that on either test HY had not established sufficient reasons for the granting of an injunction restraining PSHL from having recourse to the Defects Bond pending the determination of the appeal.
The Full Court will, in effect, have to make an interim decision as to what should happen in relation to the Defects Bond pending the determination or resolution of the parties' disputes. My role was to make a shorter-term interim decision as to what was to happen in relation to the Defects Bond pending the determination of the Full Court appeal. There were a number of factors that weighed in favour of HY. The appeal could well succeed. It might not be long before the Full Court determines the appeal. If the bond were called in and the appeal succeeded, restitution might be complicated. The calling in of the bond could harm HY's reputation. HY had moved promptly to get the appeal ready for hearing. PSHL had done nothing about calling in the bond for a very long time, and only called it in when it lost its challenge to the adjudicator's determination. However I concluded that those matters, in the aggregate, did not warrant the preservation of the status quo pending the determination of the Full Court appeal.
Because, under r 676(1), an appeal does not operate as a stay of proceedings unless there is an order to that effect, the prima facie position is that the judgment appealed from should be respected, and presumed to be correct. The determination of Brett J was not plainly wrong. The terms of the parties' contract must also be respected. Brett J had construed the contract and concluded that PSHL was entitled to have recourse to the Defects Bond. I concluded that, as contemplated by r 676(1), his Honour's decision was to be respected, and that there were insufficient reasons to grant an injunction that would preserve the status quo.
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