Hill Corcoran Constructions Pty Ltd v Navarro & Anor
[1992] QCA 17
•6/03/1992
| IN THE COURT OF APPEAL | [1992] QCA 017 |
| SUPREME COURT OF QUEENSLAND | Appeal No. 44 of 1991 |
| BETWEEN: |
HILL CORCORAN CONSTRUCTIONS PTY. LTD.
(Plaintiff) Respondent
AND:
FRANK NAVARRO and JACQUELINE NAVARRO
(Defendants) Appellants
JUDGMENT OF THE COURT
Delivered the 6th day of March 1992
The respondent to the appeal has sued the appellants in two actions under two separate instruments. The first was a building contract dated 6 September 1989 pursuant to which the respondent, a builder, agreed to construct a home unit building for the appellants. The appellants in their defence in that action have denied the respondent's claim and have counterclaimed. We shall return in more detail to that claim and counterclaim later.
The other action was in relation to the second instrument, namely a deed of loan dated 16 January 1990 pursuant to which the respondent agreed to lend to the appellants the sum of $50,000.00 "for the sole purpose of assisting [the appellants] in the construction of" the home unit building.
The respondent sought and obtained from a District Court Judge liberty to sign judgment in the second action for the amount lent and interest and it is from His Honour's order in that action that the appellants appeal.
In the Court below and, in the event, in this Court, the appellants argued that they were entitled in the action on the deed of loan to an equitable set off of the amount to which they would be entitled in the action on the building agreement and that therefore the respondent should not have leave to enter judgment against them. In the alternative, they argued that they were entitled to a stay of execution on the judgment pending the determination of the other action.
In this Court, before those questions were argued, the respondent submitted that the appeal on either ground was incompetent. We reserved our judgment on this question and allowed the parties to argue the substantive appeal.
The argument that the appeal is incompetent to the extent that it appeals against the order below giving liberty to enter final judgment depends on the view that such an order is not a final order notwithstanding that, as Mr Couper for the appellants pointed out, entry of judgment follows automatically upon liberty being granted: rr. 153, 158, 159 and 166 of the District Court Rules. We do not find it necessary to decide this question. The appellants' difficulty in this respect, if any, may be overcome by granting them leave to amend the notice of appeal so as to include an appeal against the judgment entered. The respondent could not suggest any prejudice which it suffered, other than being denied the advantage of holding the judgment below, if such leave were granted.
Accordingly, we would grant leave to amend the notice of appeal by adding, in the fifth line thereof, after the word "the" the words "judgment entered consequent upon the".
The application for a stay and that relief, if granted, was interlocutory. Leave to appeal is necessary in respect of interlocutory relief or a refusal thereof (s.92 of the District Courts Act) and none was sought, as it should have been, before the appeal was instituted: Johns v. Johns [1988] 1 Qd.R. 138 at 142. In any event, it could not have been demonstrated that the application for the stay raised an important question of law or justice. Accordingly, the appeal against the refusal of the stay is incompetent.
In support of the argument for an equitable set off, counsel for the appellants referred us to clauses 1 and 2 of the deed of loan which provide:-
"1. The principal is lent and advanced to the Borrower by the lender for the sole purpose of assisting the Borrower in the construction of a 13 home unit building at Lot 24 & 25 Canal Avenue, Runaway Bay in the State of Queensland PROVIDED FURTHER THAT should the principal not be used for the abovementioned purpose then the Borrower shall be in default under this agreement and all moneys advanced hereunder plus all interest owing shall immediately become due and payable.
2. The Borrower shall repay the principal from the sale proceeds of the units at 'La Provence' after repayment of moneys payable to Australian Guarantee Corporation Advances Pty. Ltd. secured over the home units or the Borrower shall repay the principal on the 31st December, 1990 whichever event shall occur first."
La Provence was the home unit building referred to in clause 1 which was in turn the building being constructed by the respondent for the appellants pursuant to the building contract. There was no evidence before the Court of the terms of the Australian Guarantee Corporation Advances' loan to the appellants.
Counsel for the appellants also referred us to the pleadings in the action on the building contract. The respondent's claim in that action was for $595,000.00 for moneys allegedly owing under that contract and interest. The appellants in their defence denied liability for approximately $170,000.00 of this sum alleging that various amounts claimed as variations were not in fact variations.
The appellants' counterclaim was for the cost of remedying defective work. It was deposed to that that cost would exceed $1 million.
There was thus evidence of a reasonably arguable defence and counterclaim in that action, success upon which would result in a sum owing to the appellants by the respondent which exceeded the total of the amounts which the respondent would recover in the action upon the building contract and the action upon the deed of loan. It appears from a proposed defence and counterclaim in the latter action, which is the subject of this appeal, that, if the application for liberty to sign judgment had not been made, the appellants would have made the counterclaim in this action which they make in the action on the building contract.
The appellants in the present case thus demonstrated to the satisfaction of the judge a good arguable counterclaim which exceeded the total of the claim and the respondent's claim under the building contract. The question before us is whether it was fairly arguable that they were entitled to an equitable set off in respect of that counterclaim.
The usual starting point of any discussion of the doctrine of equitable set off is the judgment of Lord Cottenham L.C. in Rawson v. Samuel (1841) 1 Cr.& Ph. 161, 41 E.R. 451, and, though his Lordship's statement that the equity of the defendant's claim must impeach the title to the plaintiff's legal demand is unfamiliar to the modern lawyer, the examples which he gave where that has been the case give some guidance here. Dicta since Rawson v. Samuel have explained that it is the closeness of the connection between the defendant's claim and the subject matter of the plaintiff's claim which may
make it unfair for the plaintiff's claim to proceed without allowance being made for the defendant's claim. See for example Government of Newfoundland v. Newfoundland Railway Co. (1888) 13 App.Cas. 199 at 213, Morgan & Son Ltd v. Martin Johnson & Co. Ltd [1949] 1 K.B. 107 at 108, Hanak v. Green [1958] 2 Q.B. 9 at 31 and Federal Commerce & Navigation Co. Ltd v. Molena Alpha Inc. [1978] 1 Q.B. 927 at 975. And as Woodward J. pointed out in D. Galambos & Son Pty Ltd v. McIntyre (1974) 5 A.C.T.R. 10 at 26, the conduct of the parties may also be a relevant factor.
It is unnecessary in the present case to consider the criticism by Spry: Equitable Remedies 4th ed. p. 176 and Meagher Gummow & Lehane: Equity Doctrines and Remedies 2nd ed. para. 3710 of the decisions in Morgan and Hanak. On either view the necessary relationship between the two claims arguably exists here.
The following facts show a relationship between the two
claims:
(1) the sum sued for by the respondent was lent by the
respondent to the appellants for the sole purpose of assisting them in the construction of the home unit building and the appellants' counterclaim is for breach by the respondent of the contract for that construction;
and more specifically
(2) the deed of loan contemplated that the appellants might
be able to use the proceeds of sale of those home units for the repayment of that sum and breach by the respondent of the construction contract would have been likely to impede the sale of the units and so impair that ability.
The building contract was not before the Court and there was thus no direct evidence of the date fixed for completion of the construction. However, it may be possible to infer from the facts that the respondent claims that final payment was due by 17 July 1990 and that the male appellant swore that the building was completed two months behind schedule, that it was due for completion by about May 1990. If that is so it may also be possible to infer that when the deed of loan was entered into in January 1990 the parties contemplated that the appellants would have more than six months after completion of the construction to the required standard and before the alternative repayment date in which to complete the sale of units.
The respondent's counsel pointed out correctly that the deed of loan does not require the appellants to use the principal in payment of the respondent under the building contract. The words "for the sole purpose of assisting [the appellants] in the construction of" the home unit building permit the use of the moneys for payment of others, if there were any, engaged in the construction of the building. There was no evidence as to whether there were any other persons who could reasonably have been contemplated. However, if it ultimately appears that it was the respondent who was intended to be paid with the money borrowed under the deed, then it will be found that the practical effect of the loan was merely to postpone payment under the building contract, and that would make the connection between the two claims seem even closer. There is some ground for thinking that this may have been the case. According to the respondent's statement of claim in the Supreme Court action, it had made a claim under the building contract for $351,491.00 on 21 December 1989 of which the appellants had paid only $240,000.00 on 8 January 1990 leaving a shortfall of more than $111,000.00. Yet shortly after the execution of the deed, on 19 January 1990, the respondent made its second claim under the building contract of $163,153.00 and the appellants on 25 January 1990 made a payment of $260,000.00.
Perhaps the appellants should have gone into evidence, or evidence in greater detail, on the possibilities raised in the last two paragraphs. But we do not think that from this failure to do so it should be inferred that there is nothing in them. And even without that evidence we think it is far from clear that there is no real question to be tried.
Accordingly, we think the appellants ought to have been given leave to defend.
Mr Morrison Q.C. for the respondent referred us to four cases which he said were close to the factual situation here. They were Indrisie v. General Credits Ltd [1985] V.R. 251, Cunningham v. National Australia Bank Ltd (1987) 15 F.C.R. 495, Eagle Star Nominees Ltd v. Merril [1982] V.R. 557 and W. Pope & Co. Pty Ltd v. Edward Souery & Co. Pty Ltd [1983] W.A.R. 117.
The facts in Indrisie have a superficial resemblance to those in the present case, but in that case the only connection said to exist between the promise by General Credits to lend Indrisie money, breach of which Indrisie alleged, and the latter's failure to pay which gave rise to General Credits' claim was that the failure of General Credits to honour its promise contributed in a general way to Indrisie's unprofitability and so its inability to pay General Credits under its lease. Here, as we have endeavoured to show, the connection is closer because the deed of loan in terms contemplated that the appellants might be able to use the proceeds of sale of the units for repayment of the loan and successful sale would be likely to be impeded by breach of the construction contract; and the connection would be even closer if the parties, at the time it was made, contemplated that the loan was in effect a postponement of payment under the building contract. The facts in the other cases are remote from this and do not assist in the resolution of this question.
A case closer to factual similarity with this is Popular Homes Ltd v. Circuit Developments Ltd [1979] 2 N.Z.L.R. 642 to which we were not referred. The defendant sold a development site to the plaintiff, the balance of the purchase price to be repaid at the end of one year and secured by a mortgage. The agreement for sale also provided that the defendant would provide finance for the development of town houses on the site, such finance to be advanced progressively over the year upon the value of the work completed. The plaintiff was allowed to set off its claim for damages for default in making the advances against the defendant's claim under the mortgage, it being contemplated that the sale of the town houses would finance repayment.
We would allow the appeal and grant the appellants leave to defend. The appellants should have their costs.
The orders of the Court therefore are:
1. The appellants be granted leave to amend the notice of appeal by adding in the fifth line thereof, after the word "the", the words "judgment entered consequent upon the";
2. The appeal is allowed;
3. The appellants have leave to defend; and
4. The respondent is to pay the appellants' costs of this appeal and of the application before Boulton D.C.J. on 10 May 1991.
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | No. 44 of 1991 |
| BETWEEN: |
HILL CORCORAN CONSTRUCTIONS PTY LTD
(Plaintiff) Respondent
AND:
FRANK NAVARRO and JACQUELINE NAVARRO
(Defendants) Appellants
Before the Court of Appeal
Mr Justice Davies Mr Justice Pincus Mr Justice Thomas
JUDGMENT OF THE COURT
Delivered the 6th day of March 1992
CATCHWORDS: EQUITY - Equitable set-off - Appeal from liberty to sign judgment in action on deed of loan - whether appellants entitled to an equitable set-off of amount claimed in separate action on building contract - whether necessary close connection between plaintiff's claim and subject matter of defendant's claim
Counsel: Mr. S.S.W. Couper for the Appellants
Mr. P.H. Morrison Q.C. and with him Mr. G.J.
Radcliff for the Respondent
Solicitors: Primrose Couper Cronin & Rudkin for the
Appellants
Robinson & Robinson for the Respondent
| Hearing date(s): | 19-20 February 1992 |
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | No. 44 of 1991 |
| BETWEEN: |
HILL CORCORAN CONSTRUCTIONS PTY LTD
(Plaintiff) Respondent
AND:
FRANK NAVARRO and JACQUELINE NAVARRO
(Defendants) Appellants
__________________________________________________
DAVIES JA
PINCUS JA
THOMAS J__________________________________________________
Reason of the Court delivered on the 6th day of
March 1992
__________________________________________________"APPELLANTS GRANTED LEAVE TO AMEND NOTICE OF APPEAL; APPEAL ALLOWED;APPELLANTS GRANTED LEAVE TO DEFEND; RESPONDENT TO PAY APPELLANTS' COSTS OF THIS APPEAL AND OF THE APPLICATION BEFORE BOULTON DCJ ON 10 MAY 1991."
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