Historic Holdings Pty Ltd v Cigna Insurance Australia Ltd

[1992] QCA 383

IN THE COURT OF APPEAL

[1992] QCA 383

QUEENSLAND

Appeal No. 20 of 1992

BETWEEN:

HISTORIC HOLDINGS PTY. LTD.

(Plaintiff) Respondent

AND:

CIGNA INSURANCE AUSTRALIA LTD.

(Defendant) Appellant

JOINT JUDGMENT OF THE PRESIDENT AND de JERSEY J.

Delivered the twelfth day of November, 1992

This is an appeal from an order made in the Trial met a similar fate.

Division on 29 April 1992, striking out the most recent

The respondent's claim against the appellant is for monies due and owing under a Bond dated 11 November 1988. The Bond sued on was one of two unconditional Bonds, each for the sum of $1,005,868.40, which were provided by the appellant in connection with the construction of the Beaufort Hotel in Brisbane for the respondent by Thiess Watkins White Construction Limited ("Thiess"). In accordance with its building contract with the respondent, Thiess arranged for the Bonds to be provided in lieu of retention money. The appellant's obligation to make payment to the respondent under each Bond was expressed to arise upon demand and it is common ground that a demand under the subject Bond was made on the appellant by the respondent on 17 December 1990, that in terms of the Bond the appellant then became obliged to make payment to the respondent, and that the appellant has not made payment as demanded.

However, the appellant contends that it is not obliged to make payment because the respondent's demand was made fraudulently. The foundation for this assertion is a contention by the appellant that the respondent is bound to Thiess, by contract or estoppel, not to claim under the subject Bond.

Clauses 9.09.07, 9.09.08 and 10.22 of the building contract between the respondent and Thiess were in the following terms:

"9.09.07 The Builder shall either concurrently with or prior to giving the written notice of Practical Completion of the Works referred to in paragraph 9.09.01 hand over to the Project Manager:

(a) all as-built drawings, all operating and maintenance manuals and all servicing contracts ( all in a form as shall have been approved by the Project Manager) as are called for by this Agreement:

(b) the Final Survey Certificate required by this
Agreement; and

(c) approvals, Certificates of Compliance and diagrams from all Authorities relating to the Owner's right to use and/or occupy the Works as shall have been obtained by the Builder, with the exception of the Liquor Licence Certificate.

9.09.08 Notwithstanding the foregoing provisions of this Clause 9.09 and any provisions in the Agreement to the contrary the Project Manager shall not be obliged to issue the Notice of Practical Completion unless and until the Builder shall have complied with all the requirements of paragraph 9.09.07.

...

10.22	Where the security provided by the Builder is in the form of an Insurance Bond the following provisions shall apply:
10.22.01 The Builder may provide one or more Insurance Bonds aggregating the amount of security required in terms of this Agreement.
10.22.02 Such Insurance Bond or Insurance Bonds shall be maintained effective until following the issue by the Project Manager of the Notice of Practical Completion pursuant to paragraph 9.09.02 or 9.09.05 or until the date the Works are deemed to have reached Practical Completion pursuant to paragraph 9.09.04 or paragraph 9.10.04 and provided the Builder shall have first complied with the provisions of paragraph 9.09.07.
10.22.03 Upon the first to happen of either of the events referred to in paragraph 10.22.02;
(a) The Owner shall authorise the reduction of the amount of the Insurance Bond or Bonds to half the original amount; or
(b) upon the Builder providing a further Insurance Bond on like terms and conditions to that or those originally provided by him but equal to one half of the amount thereof the Owner shall release the Insurance Bond or Bonds so originally provided."

However, according to the appellant, some months prior to the building contract between the respondent and Thiess, representatives of those parties orally agreed that, notwithstanding the terms of the building contract, the Certificate of Practical Completion would not be withheld because of non-compliance by Thiess with clause 9.09.07 and that, once a Certificate of Practical Completion issued, the respondent would act under clause 10.22.03 to authorise the reduction to half of the total amount of the Bonds.

Although Thiess had not complied with clause 9.09.07, the Project Manager issued a Notice of Practical Completion on 17 May 1990, and, at the same time, called upon Thiess to comply with clause 9.09.07, but it has not done so.

Thiess was placed in receivership on 29 May, 1990 and in liquidation shortly afterwards. The building contract between the respondent and Thiess was determined on 30 May 1990.

Payment of the other Bond was made by the appellant to the respondent in June, 1990, following a demand by the respondent.

The appellant contends that, in the circumstances, the respondent came under an obligation to Thiess to authorize the reduction of the total of the two Bonds to one-half, that it has already been paid that amount under the other Bond, and that there is necessarily involved a promise by the respondent to Thiess not to claim under the subject Bond. According to the appellant, a claim made by the respondent in these circumstances is fraudulent and need not be paid by the appellant despite the unqualified language of the Bond.

Many of the authorities referred to in argument are collected in the recent decision of the Full Court in Burleigh Forest Estate Management Pty. Ltd. v. Cigna Insurance Australia Ltd. (1992) 2 Qd.R. 54. However, detailed analysis of prior decisions is not called for on this occasion.

The continuing relationship between Thiess and the respondent terminated on 30 May, 1990, leaving each to their respective claims against the other for debt or damages, subject to the effect on those claims of Thiess' liquidation. It is possible that one of Thiess's claims is a claim that the respondent breached their contract by not authorizing the reduction of the amount of the Bonds to half prior to the termination of the contract between the respondent and Thiess. If so, any damages suffered by Thiess may be recoverable in due course in the overall resolution of issues between Thiess and the respondent.

However, in such circumstances, especially in the absence of a full explanation of the respective claims and cross-claims between the respondent and Thiess, the allegations made by the appellant provide no basis for a conclusion that the respondent was under a continuing obligation to Thiess not to make a demand under the subject Bond when it did so.

In any event, before a defence based on fraud could have even a remote prospect of success, it would be necessary for the appellant to prove that the respondent knew that it was not entitled to make the demand or perhaps that it made it recklessly, heedless of whether or not it had a right to do so. No such allegation is pleaded, or could properly be pleaded on the basis of the other allegations in the Defence which has been ordered to be struck out.

The matters alleged by the appellant in the most recent version of its Defence fall far short of establishing that the respondent's demand was fraudulent, which is the sole basis upon which it seeks to defend the respondent's claim.

Accordingly, the appeal should be dismissed with costs. The parties are agreed upon the orders which should be made by the Court in such circumstances.

IN THE COURT OF APPEAL

QUEENSLAND

Appeal No.79 of 1992

BETWEEN:

HISTORIC HOLDINGS PTY. LTD.

(Plaintiff) Respondent

AND:

CIGNA INSURANCE AUSTRALIA LTD.

(Defendant) Appellant

The President
Mr Justice Pincus
Mr Justice de Jersey

Judgment delivered on the twelth day of November, 1992. Reasons for judgment delivered by the President and de Jersey J. jointly. Pincus JA delivering separate reasons. All concurring as to the order.

APPEAL DISMISSED WITH COSTS.

IN THE COURT OF APPEAL

QUEENSLAND

Appeal No.79 of 1992

Before the Court of Appeal

The President
Mr. Justice Pincus
Mr. Justice de Jersey

BETWEEN:

HISTORIC HOLDINGS PTY. LTD.

(Plaintiff) Respondent

AND:

CIGNA INSURANCE AUSTRALIA LTD.

(Defendant) Appellant

JOINT JUDGMENT OF THE PRESIDENT AND de JERSEY J.

Delivered the twelfth day of November, 1992

MINUTE OF ORDER:	Appeal dismissed with costs
CATCHWORDS:	Fraud, misrepresentation and undue influence. Pleadings. Appeal from order striking out defence - whether matters alleged by appellant in defence sufficient to establish respondent's demand fraudulent - whether allegations necessary to maintain defence based on fraud pleaded.
Counsel:	Mr D.J.S. Jackson Q.C., with him Mr R. Perry for the Appellant
Mr P.J. Lyons, with him Mr P.L. O'Shea for the Respondent
Solicitors:	Messrs. Hopgood and Ganim for the Appellant Messrs. Barker and Gosling for the Respondent

Hearing date: 26 October, 1992
IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 79 of 1992

BETWEEN:

HISTORIC HOLDINGS PTY. LTD.

(Plaintiff) Respondent

AND:

CIGNA INSURANCE AUSTRALIA LTD.

(Defendant) Appellant

JUDGMENT - PINCUS J.A.

Delivered the Twelfth day of November 1992

This is an appeal from an order striking out the further amended defence of the defendant ("the insurer") in an action brought on a document as follows:

"(The Defendant) unconditionally

undertake to pay on demand any sum which may from time to time be demanded by (the Plaintiff) up to a maximum of $1,005,868.40.

This undertaking shall continue in force either until notification has been received by (the Defendant) from (the Plaintiff) that this undertaking is no longer required by (the Plaintiff) or until payment to (the Plaintiff) by (the Defendant) of the whole of the said sum of $1,005,868.40".

The appellant says that it is entitled to refuse to pay, a demand having been made, on the ground that the demand made and indeed the proceedings brought in consequence of refusal of the demand are fraudulent. They are properly so described, according to the appellant's argument, because they were made and brought although the respondent knew the money demanded was not owing.

At first sight, the proposition that the making of a claim or bringing of a suit which must fail is, without more, a fraud is a startling one. Claims may fail for many reasons and the fact that one is ultimately held to be bad goes no distance towards proving that the making of it was a fraud. Further, the appellant's contention appears to involve a circular argument: the money is not due, it says, because the claim is fraudulent and the claim has that character because the money is not due. It is, however, unnecessary to deal with that apparent defect in the appellant's argument, in view of my conclusion on a more basic aspect of the law.

The document under which the appellant's obligation allegedly arises, called a "release retention money bond" and dated 11 November 1988, was one of two provided by the appellant in connection with the construction of a hotel in Brisbane for the respondent by Thiess Watkins White Construction Limited ("Thiess"). The building contract ("the contract") provided for Thiess to arrange for the bonds to be executed in lieu of retention money and that was done. Clauses 9.09.07, 9.09.08 and 10.22 of the building contract were in the terms set out in the reasons of Fitzgerald P. and de Jersey J.

As has been explained, there were two bonds and these were for equal amounts, aggregating the amount of security required, as contemplated by clause 10.22.01. Demand was duly made under the first bond in June 1990 and that was paid. The dispute which has arisen relates to the second bond, constituting half of the original amount. The appellant says that under the contract the respondent was obliged to authorise the reduction of the original amount to one-half under clause 10.22.02, necessarily implying that, two bonds for equal amounts having been given, the respondent would make no demand under the second bond.

The first question then is whether it is correct that, as between the parties to the contract - i.e. as between Thiess and the respondent - the right to claim against the appellant under the second bond was gone.

The case was treated below as being an application under the inherent jurisdiction of the Court; the judge looked at evidence as well as the pleadings, with respect to the point under discussion. However, the matter must be considered on the assumption that the appellant would, if the matter were tried, prove the assertions in the further amended defence.

It will have been noticed that under clause 10.22.02 and 10.22.03, the reduction to one-half was made conditional upon, to put it simply, the occurrence of practical completion "provided the Builder shall have first complied with the provisions of paragraph 9.09.07". Further, clause 9.09.07 requires that certain documents be handed over to the project manager. The appellant's pleading says that a certificate of practical completion was issued. To produce the result which the appellant says ensued, it was, prima facie, necessary that the documents mentioned in clause 9.09.07 be handed over. If that were not done, then there would be no question of the bond being reduced by the contract to half the original amount. The appellant's case as pleaded is that some months before the contract was made, there was a discussion between representatives of the then prospective parties to it in the course of which it was represented, in effect, that the relevant obligation would be reduced to one-half upon the issue of a certificate of practical completion, without enforcement of the requirements of clause 9.09.07.

In those circumstances, it was said, the respondent's claim on the appellant was a fraud, because the money was not due and the respondent knew it was not due. It is important to notice that the pleading does not set up that in making the claim against the appellant, the respondent misled it. Nothing is pleaded as to the state of knowledge of the appellant when the claim was made. Nor does the appellant say that the representations made were untrue, when made; the case put forward is that the appellant acted on them and therefore an estoppel arose. It is necessary to add that no plea of estoppel is mentioned in the defence; the appellant's counsel put it forward in the course of argument.

In reliance on a representation that a provision to be considered in it would not be enforced, it is said, Thiess entered into the written contract. The analysis on which the appellant relies then must be that, because of the representation, the respondent is not entitled to insist upon the clause in question as a precondition of reducing the bond liability.

Let it be assumed that, by reason of the representation, the respondent must be treated as having no right to rely upon clause 9.09.07 - as if that clause were not in the contract. The result would be that, as between the appellant and the respondent, making demand in respect of the second bond would constitute a breach of contract.

The question then arises whether, in those
circumstances, the appellant would have a good defence
against the respondent.

In Wood Hall Limited v. The Pipeline Authority (1979) 141 C.L.R. 443, there was a somewhat similar dispute, which culminated in proceedings in the High Court between the principal and the contractor. The question was whether the contractor was entitled to an injunction to restrain a bank which had executed documents, similar in effect to the bond which is in issue in this case, from making payment under it. As here, the documents, called "guarantees", contained

promises to pay on demand, without any express provision
relieving the bank of its obligation if the demand for
payment did not conform to the requirements of the contract
between principal ("the Authority") and contractor.

The leading judgment was that of Gibbs J., with whom Barwick C.J. and Mason J. agreed. That dealt with two arguments advanced on behalf of the contractor, of which only the first is relevant here. Gibbs J. said:

"The argument advanced on behalf of the contractor, shortly stated, was that the bank guarantees must be construed in the light of the contract between the Authority and the contractor in relation to which they were given and that when so construed they create obligations accessory to those imposed upon the contractor by that contract. The effect of the guarantees, so construed, was said to be that the obligation of the Bank to make payment was conditional upon the making of a demand by the Authority in circumstances in which the Authority had a right under the contract to make such a demand, i.e., after the contractor had committed a breach of its primary obligations under the contract" (450).

Gibbs J. rejected that contention, holding that the recourse to the bank guarantees ...". His Honour went on:

"guarantees" did not make the bank's obligation dependent
"upon the existence of circumstances which give the

"By each of the bank guarantees, the Bank 'unconditionally' undertakes 'to pay on demand' the sum demanded up to the limit specified in the bank guarantee. To hold that the bank guarantees are conditional upon the making of a demand that conforms to the requirements of the contract between the Authority and the contractor would of course be quite inconsistent with the express statement in the bank guarantees that the undertaking of the Bank is unconditional. To hold that the Bank should not pay on receiving a demand, but should be bound to enquire into the rights of the Authority and the contractor under a contract to which the Bank was not a party would be to depart from the ordinary meaning of the undertaking that the Bank is to pay on demand".

Concluding that it was "clear that the Bank was obliged to the Authority to make payment when demand was made" (452), the reasons went on to consider whether the contractor was entitled to any relief against the bank and determined that it was not; that part of the reasons is not of present relevance. What matters is that the High Court declined to read the "guarantees", which made the money with which they dealt payable "unconditionally" and "on demand", as being subject to a condition that there be a right under the contract between the principal and the contractor to make the demand. Here also, there is a promise to pay on demand and it is expressly made unconditional. No basis was advanced in argument for distinguishing the effect of the bond we are concerned with from that of the Wood Hall "guarantees". If one assumes in favour of the appellant that as between the principal and contractor there was no right in the principal to make demand on the appellant, then still the appellant was obliged to pay.

It may be remarked that the result is, in a practical sense, a satisfactory one. The unconditional promise to pay on which a principal relies in lieu of retaining cash is of much diminished value if it is to read as effective only if, perhaps after complex litigation, it is established that the principal is, as against the contractor, entitled to make demand on the promisor for fulfilment of the promise.

The appeal must in my opinion be dismissed, and with costs. The Court was told at the conclusion of the hearing that the parties expected to be able to agree on the orders which would be appropriate in the event of the appeal's being dismissed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 79 of 1992

Before the Court of Appeal
The President
Mr. Justice Pincus

Mr. Justice de Jersey

BETWEEN:

HISTORIC HOLDINGS PTY. LTD.

(Plaintiff) Respondent

AND:

CIGNA INSURANCE AUSTRALIA LTD.

(Defendant) Appellant

JUDGMENT - PINCUS J.A.

Delivered the Twelfth day of November 1992

Counsel:	D.J.S. Jackson Q.C., with him R. Perry for the Appellant P.J. Lyons Q.C., with him P.L. O'Shea for the Respondent
Solicitors:	Hopgood and Ganim for the Appellant Barker Gosling for the Respondent
Hearing Date(s):	26 October 1992