KCL Developments Pty Limited v TQM Design and Construct Pty Limited
[2011] NSWSC 780
•22 July 2011
Supreme Court
New South Wales
Medium Neutral Citation: KCL Developments Pty Limited v TQM Design & Construct Pty Limited & Ors [2011] NSWSC 780 Hearing dates: 22/07/2011 Decision date: 22 July 2011 Jurisdiction: Equity Division - Technology and Construction List Before: Einstein J Decision: The application is dismissed with costs
Catchwords: Application for strike out of pleadings - UCPR r14.28 - Evidence in strike out proceedings - Refusal to determine merits in application for strike out - Strictness in entertaining strike out applications in Technology and Construction List Legislation Cited: Environmental Planning and Assessment Act 1979 (NSW).
Home Building Act 1989 (NSW)
Uniform Civil Procedure Rules 2005Cases Cited: Agar v Hyde (2000) 201 CLR 552
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937
Chu Kheng Lim v Minister for Immigration Local Government and Ethnic Affairs (1992) 176 CLR 1
Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Harris v Caladine, In the Marriage of (1991) 172 CLR 84
Kell & Rigby Holdings Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2010] NSWSC 777
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Nicholas v The Queen (1998) 72 ALJR 456
Polyukhovich v Commonwealth of Australia (War Crimes Case) (1991) 172 CLR 501
Nolan, Re; Ex parte Young (1991) 172 CLR 460
R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361
Remmington v Scoles [1897] 2 Ch 1
Webster v Lampard (1993) 177 CLR 598
X (Minors) v Bedfordshire County Council [1995] 2 AC 633Category: Procedural and other rulings Parties: KCL Developments Pty Limited (Plaintiff)
TQM Design & Construct Pty Limited (First Defendant)
Mark Taouk (Second Defendant)
Maroun Taouk (Third Defendant)
Lyall Dix (Fourth Defendant)Representation: Counsel:
Mr F Hicks (Plaintiff)
Ms V Culkoff (First and Third Defendants)
Solicitors:
Newhouse and Arnold Solicitors (Plaintiff)
Orsini Solicitors (First and Third Defendants)
File Number(s): 2010/345384
Judgment
The application
There is before the Court an application pursued by the first and third defendants (TQM) seeking to strike out the amended summons and list statement of the plaintiff (KCL) pursuant to Part 14 rule 28 (a)-(c) of the Uniform Civil Procedure Rules 2005 .
Pursuant to the Technology and Construction List Practice Note (SC Eq 3) "applications for strike out or for summary judgment will not be entertained and, although sometimes appropriate, parties and practitioners should expect strictness in declining to entertain such applications".
To my mind the application presently being pursued falls foul of the above described practice note and requires to be dismissed.
At the commencement of the case, Ms Culkoff for the defendant sought leave to tender a number of exhibits to various affidavits. This application was opposed by Mr Hicks counsel for the plaintiff. His position was that the only entitlement of the defendants was to have the Court examine how the list statement articulated the claims which the plaintiff pleaded in its case.
Counsel for the defendants strongly contended that her clients had every right to take the Court to certain evidence which counsel for the defendants could rely upon in what she described as 'materials showing the objective nature of the parties dealings interse'.
This matter was agitated at length.
Before ruling on this, it is appropriate to briefly outline the history of the litigation and then treat with some of the respective contentions put by the parties. I proceed accordingly.
The litigation
TQM commenced Supreme Court proceedings against the Koks by reference to its claim for $2,786,609 (plus interest) upon KCL and the Deeds of Guarantee and Indemnity (proceedings No. 2010/126857; the Guarantee Proceedings).
TQM has lodged a caveat over certain land owned by KCL by reference to its claim for $2,786,609 (plus interest). A lapsing notice was served and the extension of the caveat is the subject of Supreme Court proceedings No. 2010/156983 (the Caveat Proceedings).
By reference to the contentions of KCL stated at paragraph 5 above, and dealt with in more detail below, KCL commenced Supreme Court proceedings disputing the claim of TQM and claiming relief and damages (proceedings No. 2010/345384; the Main Proceedings).
Pursuant to leave granted, KCL filed and served an Amended Summons and List Statement on 11 March 2011 (the Amended Summons) in the Main Proceedings.
On 25 March 2011, KCL sought that three sets of proceedings arising between the various parties in respect of the Project be placed in the Technology and Construction List and heard together. This application was opposed by TQM.
The Court made the orders sought by KCL on 25 March 2011 such that the Guarantee Proceedings and the Caveat Proceedings were transferred from the Equity Division General List to the Technology and Construction List to be heard with the Main Proceedings.
On 8 April 2011, TQM, Mark Taouk and Maroun Taouk were directed to serve their List Responses in the Main Proceedings by 6 May 2011. They each failed to do so, by that date or at all.
On 5 May 2011, TQM made an application in the Guarantee Proceedings to strike out the Defence and Cross Claim of the Koks and/or for summary judgment in respect of its entitlement to the sum of $2,786,609 (plus interest) pursuant to its claim upon KCL and the Deeds of Guarantee and Indemnity. Relevantly, TQM asserted that:
(1) the Koks had given a guarantee and indemnity in respect of amounts payable by KCL to TQM;
(2) KCL was liable to pay TQM the sum of $2,786,609 (plus interest) under the Building Contract and the Side Deed;
(3) KCL and the Koks were bound by alleged admissions made in a document of 1 October 2009 (also called the Second Side Deed ) and were estopped from contesting liability in respect of the sum claimed;
(4) KCL had failed to pay the amount due and TQM was entitled to strike out the Defence and Cross Claim of the Koks and to judgment for the sums stated.
It is to be noted that in due course certain contentions particularly as to the substance and effect of the document of 1 October 2009, are repeated in this application for strike out of KCL's Amended Summons and List Statement.
Associate Justice Macready refused that application in a judgment delivered on 17 May 2011. In particular, the judgment concluded that:
(1) there was uncertainty as to what might be the factual situation with regard to the form of the guarantee and the definition of "Guaranteed Money" such that was inappropriate that the matter be determined on a strikeout motion and a motion for summary judgment (paragraph 41); and
(2) there were factual issues to be determined as to the circumstances in which the document of 1 October 2009 was negotiated and came to be executed, which made the questions as to its substance and effect at law inappropriate for determination as a matter of summary judgment or strike out (paragraph 45).
To my mind there is clear substance in the plaintiff's contention that the decision of Associate Justice Macready was given against a background where the parties were well aware of the orders made requiring the Guarantee Proceedings and the Caveat Proceedings to be transferred from the Equity division General List to the technology and construction List to be heard with the Main Proceedings.
The plaintiff's submissions
Both parties put forward extensive written submissions. It is only necessary to deal with a few of those submissions in the circumstances already identified.
The plaintiff's submissions serve to outline some of the background picture as follows :
(1) These proceedings were commenced by Summons and List Statement in the Technology & Construction List and concern claims by the plaintiff ( KCL ) against the defendants (TQM Design and Construct Pty Ltd, Mark Taouk, Maroun Taouk, and Lyall Dix) arising from the arrangements and works performed for the design and construction of a residential strata complex on adjoining parcels of land at Warrawee, NSW (the Project).
(2) There were a number of agreements entered into in respect of the Project between KCL, TQM Design and Construct Pty Ltd (TQM), and Choy Lim Kok and Lee-Ling Kok, the directors of KCL (the Koks). These agreements included:
(a) a joint venture agreement between TQM and the Koks (the JV Agreement);
(b) a building contract between TQM and KCL, whereby TQM was to undertake the design and construction of the project for a lump sum price of $15,834,000 (the Building Contract);
(c) a side agreement, whereby KCL was to pay TQM an additional amount of $2,000,000 upon completion of the works under the Building Contract (the Side Deed); and
(d) two (2) deeds of guarantee and indemnity, whereby the Koks undertook certain obligations with respect to the payment of monies which may become due to TQM from KCL under the Building Contract and the Side Deed (the Deeds of Guarantee and Indemnity).
(3) TQM claim to have completed works under the Building Contract and to be entitled to payment of the sum of $2,786,609 (plus interest) under the Building Contract and the Side Deed. TQM has been paid the whole of the lump sum price under the Building Contract.
(4) KCL disputes the TQM claim for further payment. It also claims, inter alia :
(a) liquidated damages;
(b) that the works are defective in breach of the contract and the warranties under the Home Building Act 1989 (NSW); and
(c) that TQM, Mark Taouk and Maroun Taouk engaged in misleading and deceptive conduct with respect to:
(i) the entry into the Building Contract and the Side Deed and its terms; and
(ii) the circumstances in which TQM and Mark Taouk asserted completion and obtained an occupation certificate under the Environmental Planning and Assessment Act 1979 (NSW).
The plaintiff then contends that the present application cannot succeed for the following reasons:
(1) This is not a proper application for strike out application. It seeks a substantive determination of the merits of KCL's claims or its entitlement to bring those claims without a substantive hearing. A party is not entitled to strike out an opponent's pleadings or to summary judgment merely because it can identify a strong or prima facie case ( Webster v Lampard (1993) 177 CLR 598 at 602-603).
(2) The application of TQM proposes a course that is contrary to the proper administration of justice and exercise of judicial power. In Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [56]), Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ held as follows:
Judicial power involves the application of the relevant law to facts as found in proceedings conducted in accordance with the judicial process (See Harris v Caladine, In the Marriage of (1991) 172 CLR 84 at 150 per Gaudron J, referring to R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361 at 374 per Kitto J. See also Re Nolan; Ex parte Young (1991) 172 CLR 460 at 496 per Gaudron J; Polyukhovich v Commonwealth of Australia (War Crimes Case) (1991) 172 CLR 501 at 532 per Mason CJ, 703-704 per Gaudron J; Chu Kheng Lim v Minister for Immigration Local Government and Ethnic Affairs (1992) 176 CLR 1 at 67 per McHugh J; Nicholas v The Queen (1998) 72 ALJR 456 at 473-474 per Gaudron J). And that requires that the parties be given an opportunity to present their evidence and to challenge the evidence led against them (See Harris v Caladine (1991) 172 CLR 84 at 150 per Gaudron J; Nolan, Re; Ex parte Young (1991) 172 CLR 460 at 496 per Gaudron J). It is contrary to the judicial process and no part of judicial power to effect a determination of rights by applying the law to facts which are neither agreed nor determined by reference to the evidence in the case.
(3) The general principle that the power to strike out should be exercised only in plain and obvious cases precludes the Court from any interim enquiry about the real merits of the plaintiff's case ( Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937).
(4) Where, as here, the application for strike out is based on the merits, entitlement and findings of fact, the application is to be refused. As stated in Ritchie's Uniform Civil Procedure NSW (notation 14.28.40):
Neither the apparent falsity or improbability of the impugned allegations justifies the exercise of the power [to strike out] - because any attempt to investigate those matters would involve premature, and potentially unfair, trial of the proceedings: Remmington v Scoles [1897] 2 Ch 1 at 7. Indeed, there are numerous warnings in the authorities against entertaining strike out applications where they involve a preliminary and necessarily inconclusive investigation of the facts on which the claim is based: X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 740-1; Agar v Hyde (2000) 201 CLR 552 at 577.
(5) Furthermore, the nature of the application means that:
(a) the allegations in the impugned pleading will ordinarily be taken to be accepted; and
(b) evidence as to the factual basis for the allegations made, or the contest as to the facts in issue, rather than the matter of the pleading, is inadmissible.
(6) Pursuant to the Technology & Construction List Practice Note (SC Eq 3), applications for strike out are not to be entertained and, although sometimes appropriate, parties and practitioners should expect strictness in declining to entertain such applications (paragraph 62).
Mr Hicks objected to the Court dealing with the defendants' strikeout motion as misconceived. He cited Lord Diplock who pointed out as follows :
Where the issue separately determined is not decisive of the suit, the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be to clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate court to adduce further evidence. [ Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 642]
In those circumstances, Mr Hicks objected to the defendants seeking to bring forward what was characterised as admissions in the written submissions or an estoppel which he said to be the effect at law of particular documents sought to be placed into evidence by the defendants.
In general terms, Mr Hicks contended that the court should not receive any evidence at all on the defendant's application. Rather the court would go to the summons and in the statement of claim and would consider whether on its face it disclosed sufficiently a course of action so as to allow these proceedings to go ahead.
The defendants' submissions
The defendants produced 30 pages of close submissions in support of its notice of motion.
The matters put before the Court by the defendants generally point up the numerous questions of fact and law which separate the parties as to inter alia :
(1) the discussions and representations made by TQM in the context of the proposal for the Project;
(2) the circumstances in which the various documents comprising the transaction were executed;
(3) the circumstances in which TQM claims to have been directed to perform variations, the performance of the works, and the amount to which TQM is entitled in respect of its claims (if anything);
(4) the circumstances in which TQM claims to have reached completion so as to be entitled to the monies claimed for the Completion Fee;
(5) claims for defects and liquidated damages;
(6) the circumstances in which TQM procured certain documents and certificates from Mark Taouk, in respect of the Building Contract and whether those documents are valid and binding upon KCL in the circumstances.
Decision
I have closely examined the defendants' attack upon the plaintiff's amended pleadings. There is no substance in the proposition that the amended pleadings should be struck out.
The Court accepts that there is no reasonable basis to consider or allow a strike out by reference to a conventional estoppel pursuant to the 1 October 2009 document. As the plaintiff has observed it would be an extraordinary miscarriage of judicial power for the claims made in proceedings in the Technology & Construction List to be struck out by reference to:
(1) a matter and a document not yet even raised by any List Response; and
(2) a preliminary determination as to its substance, proper construction and effect at law based on a pre-emptory consideration of some of the evidence.
Further, it is well established that the proper construction and effect at law of a document, its terms, and any obligations or entitlements alleged to arise, are to be properly construed having regard to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure ( McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 per Gleeson CJ). The intention of the parties must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances ( GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, (per McHugh JA at 634E-F, with whom Kirby P and Glass JA agreed).
Whether or not the document contains admissions, and whether that is significant in the context of the claims for relief, is a matter that needs to be considered in the context of the whole dispute and the circumstances in which the document came to be signed. It is clear that those matters are disputed facts.
Finally, as already pointed out the alleged admissions and estoppels, these same points were argued by TQM before Associate Justice Macready in the Guarantee Proceedings on 5 May 2011 when TQM sought:
(1) to strike out the Defence and Cross Claim of the Koks; and/or
(2) summary judgment against the Koks.
Decision on the plaintiff's objection taken close to the commencement of the hearing
I am satisfied that the submissions of the plaintiff are of substance.
For that reason, the ruling is that the defendants are confined to considering the content of the list statement which may be dealt with simply by considering the statement, if the statement itself is such as to be vexatious or similar those sections of the statement will be struck out [arguably the plaintiff would have the leave of the Court to cure such defects].
Turning to the defendant's attack upon the pleadings
Objection to the intelligibility of the plaintiff's pleadings was raised on six grounds. These were:
(1) The Benchmark standard is ambiguous;
(2) The term surplus funds is extremely ambiguous;
(3) The requirement for the buildings to be as high quality and of a better standard than the neighbouring Mirvac residential apartments is uncertain;
(4) The allegation that the benchmark standard was promissory and cannot give rise to an estoppel is unsupportable;
(5) The alleged defects are not identified with any certainty;
(6) The liquidated damages claim is unsupportable
Ms Culkoff concluded with the proposition that particulars cannot fix defective pleadings and the pleadings themselves are defective such that they should be struck out.
To my mind none of the so-called difficulties which the defendants put forward concerning the pleadings were made out. A measure of the lack of substance in the defendants alleged complaints may be seen from a letter written by the then lawyers to the defendants in May 2010 which became MFI P1. This five-page letter closely examined a large number of omissions and works accepted as an outstanding by TQM. It seemed obvious from the defendants' counsel that she had not been aware of this letter. The letter clearly had been sent and the Court is left with the clear impression that for better or for worse the defendants had no real reason for certainly a number of the complaints they made.
Dealing more specifically with the complaints:
(1) The complaint dealing with the benchmark standards does not warrant a strike out but simply sounds in matters of fact;
(2) The complaint concerning surplus funds may be somewhat uncertain, but needs judicial consideration of the evidence;
(3) The complaints concerning comparison with Mirvac apartments sounds only in questions of fact;
(4) The complaints concerning misrepresentation having been promissory is again a matter which sounds in fact;
(5) The defects are set out clearly in the letter already referred to and are sufficiently able to be determined either by a referee or the Court
(6) Finally the liquidated damages complaint has no substance when certificates set aside or a matter of law;
I accept that there are some legitimate questions asked about whether or not the term or phrase "surplus funds" is capable of forming any legal claim as a result of its uncertainty. Nonetheless for the purposes of the strike out application the Court will not reject that phrase. It is a term or a contention which is advanced by reference that the parties themselves discussed at the time and the Court in the final hearing will need to consider in fact what the parties said. The plaintiff particularised that term by reference to the negotiations that were undertaken in several conversations between Messrs Mark Taouk, Maroun Taouk and Richard Kok prior to entering into the joint venture agreement in a period from about March 2006.
The last matter is the question of liquidated damages and whether as a result of certain claims that are made in the alternative against Mark Taouk, the plaintiff is entitled to assert that TQM is liable to it for liquidated damages under the terms of the building contract. That is a matter of law cf: Kell & Rigby Holdings Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2010] NSWSC 777 .
As a matter of law those submissions are up for challenge and if the plaintiff can demonstrate that those certificates can be ignored then the liquidated damages claim is well within the entitlement of the plaintiff to advance and is certainly not a matter to be struck out presently when those certificates themselves in these proceedings the subject of challenge.
Orders
The Court orders that the application be dismissed with costs.
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Decision last updated: 25 July 2011
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