Kennedy-Taylor (NSW) P/L v PSD Development Corp. P/L
[1993] FCA 178
•01 APRIL 1993
Re: KENNEDY-TAYLOR (NSW) PTY LIMITED
And: PSD DEVELOPMENT CORPORATION PTY LIMITED and PHILLIP GREGORY HARVEY
No G617 of 1991
FED No. 178
Number of pages - 14
Trade Practices - Representations
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J(1)
CATCHWORDS
Trade Practices - Representations - building contractor in liquidation - monies claimed by subcontractor against proprietor of building site - representations made by proprietor to subcontractor - special account established to pay subcontractors - oral contract - oral guarantee - misleading and deceptive conduct - promissory estoppel - deceit - quantum meruit - unjust enrichment
Trade Practices Act 1974 (Cth) ss 52, 75
Pavey and Matthews v. Paul (1987) 162 CLR 221
Federal Sugar Refining Co v. United States Equalisation Board 268 F.575 (1920) (SDNY)
Goff and Jones, The Law of Restitution 3rd ed. (1986)
HEARING
SYDNEY, 22 October 1992 and 26 November 1992
#DATE 1:4:1993
Counsel and solicitor Mr T J Hancock
for the applicant : instructed by Martin Cooper and
Company
Counsel and solicitor : Mr S Epstein
for the respondents instructed by Lincoln Smith
and Company
ORDER
The Court orders:
1. Application dismissed.
2. Applicant to pay respondents' costs.
Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
JUDGE1
EINFELD J These proceedings were commenced by application and statement of claim filed on 4 October 1991. The statement of claim was amended by leave granted at the commencement of trial on 22 October 1992. The applicant, Kennedy-Taylor Pty Limited, seeks to recover the amount of $333,390.24 from the respondents, PSD Development Corporation Pty Limited (PSD) and one of its directors Phillip Gregory Harvey. This amount represents the monies claimed by the applicant to be due under a building contract with a third party, K B Hutcherson Pty Limited (KBH). The applicant bases its claim on a number of alternative grounds including breach of contract, breach of guarantee, and an alleged contravention of section 52 of the Trade Practices Act 1974 (Cth). It alleges that Mr Harvey aided and abetted that contravention, as permitted by section 75 of the Trade Practices Act.
In August 1988 PSD entered into a contract with KBH for the construction of a commercial building on land at 350 Kent Street, Sydney, of which it was the registered proprietor. The development of the site was to be a joint venture with Elders Finance Limited (Elders). In July 1988 KBH called for tenders for the electrical work involved in the development and in August it accepted a tender from the applicant. The applicant commenced work at the site in early August 1988. On 20 October 1988 KBH and the applicant entered into a written subcontract (the subcontract) in the standard form of the Royal Australian Institute of Architects and the Building Owners' and Managers' Association. The subcontract specified the commencement date of the works to be 2 August 1988 and the completion date to be 9 October 1989. The actual completion date of the applicant's work was August 1990.
The terms of the subcontract are not in issue in these proceedings. It is sufficient to say for present purposes that the subcontract was for a lump sum of $204,500 "or such other sum as shall be determined from time to time in accordance with the provisions of this Agreement" (clause 1.06.10). The applicant was entitled to recover its costs and expenses if it was delayed in completing the subcontract through no fault of its own (clause 10.11). The subcontract also made provision for the applicant to be reimbursed for variations to the contract (clause 6.11) and for delay caused by those variations (clause 10.17). There were a number of conditions precedent to the recovery of such costs (clause 10.12).
During the course of the subcontract the applicant made progress claims upon KBH. By June 1990 there was a time overrun in the development of the site and KBH was having financial difficulties. On 6 June 1990 Mr Harvey, as a director of PSD, attended a lunch with Mr Derek Sidey who was then the commercial manager of KBH. According to Mr Harvey's evidence, Mr Sidey said at that time that KBH was suffering short-term cash flow problems and that the applicant should pay some key subcontractors direct. Mr Harvey also said that Mr Sidey confirmed to him at this meeting that KBH was solvent and was expecting to be paid shortly a great deal of money for work done on other projects.
The fact that a conversation on these subjects took place between these two men was recorded in a letter from Mr Sidey to Mr Harvey dated 7 June 1990, following which an account was opened, by either KBH or Elders, in the name of KBH at the Milson's Point branch of the Commonwealth Bank. It was styled "KBH Constructions Pty Limited - Account No. 2" (the No. 2 account). The withdrawal of any funds from the account required the approval of either Elders and KBH jointly, or Elders only. Monies were deposited to the account by Elders. The purpose of the account was to enable key subcontractors to be paid directly by Elders.
In mid-June 1990, being concerned about the non-payment of progress claims, Mr Lucanus, the applicant's chief executive, withdrew the company's labour force from the site. On 14 June 1990 he spoke to Mr Sidey of KBH by telephone regarding an amount of approximately $54,000 claimed to be outstanding from KBH. This telephone call was confirmed by a letter dated 14 June 1990, the body of which is as follows:
Further to our telephone conversation of today's date and your notification that the client, P.S.D. Developments, will pay Kennedy-Taylor direct for the outstanding progress claims for the above project.
We are pleased to advise that we will resume work on the Electrical Services to the abovementioned project on receipt of monies for progress claims outstanding on this project. At present progress claims total $188,275.00 and payments received total $129,307.00. Cash Retention held by K.B.H. total $10,268.00, therefore, balance of progress claims outstanding is $48,700.00. Additional to this, there is an unpaid amount of $6,123.25 in direct debits. On receipt of all these outstanding monies as set out above we will return to site to complete our Electrical Sub-contract. As previously notified, we again request the substitution of a Bank Guarantee in lieu of Cash Retentions now being held by yourselves.
We are anxious to have this matter cleared up as soon as possible so we can complete our sub-contract.
This letter was followed by another from Mr Lucanus to KBH on 15 June 1990:
Further to our telephone conversation today in which we were assured that the client would pay $35,556.00. Our Company will agree to return to site on receipt of these monies and also a written guarantee from the Developer that they will pay Kennedy-Taylor any outstanding progress claims at the completion of this project.
We will also require from yourselves a written assurance that direct day works performed by your Company on this project will be paid on practical completion. As requested previously, we still require evidence of lodgement of Cash Retentions in the required Trust Fund or alternatively we are still prepared to lodge a Bank Guarantee in lieu of these Retentions.
Apart from the payment from the joint account, on 21 June 1990, of the $35,556 referred to in the letter of 15 June, none of the other requirements were fulfilled. There was no response to or follow up of the request for a bank guarantee from KBH as raised in the letter of 14 June or for a written guarantee from PSD as mentioned in the letter of 15 June. Nevertheless the applicant's workforce returned to the site and by 25 June 1990 the electrical work on the subcontract was virtually complete. There was apparently some additional finishing up work, but apart from claims for variations, it appears that the applicant as at that date was entitled to full or almost full payment for the contract.
In early July Mr Lucanus telephoned Mr Harvey and there was a conversation between them which is central to this case (the conversation). The fact that it took place is not in dispute. Mr Lucanus says it occurred on 9 July 1990 while Mr Harvey is unable to be precise about the date although he remembered several telephone calls in early July.
Mr Lucanus' account of the conversation was as follows:
Mr Lucanus:
We have not been paid some progress payments on the 350 Kent Street job and I have no alternative but to withdraw this company's labour from the job unless all our progress claims and variations submitted to KBH Constructions is paid forthwith. I had a conversation with Derek Sidey in the middle of June and he told me that all progress payments on this job were being paid direct to the subies. Are you going to pay us?
Mr Harvey:
We have set up a joint account into which all 350 Kent Street project payments are being made and KBH does not have direct access to that account. However, we have checked out KBH and we are confident that they will not be closing and will be able to finish the project as builder. A cheque for $19,000.00 in favour of Kennedy-Taylor has been drawn and I will track it down for you.
Mr Lucanus:
In view of that I will return our men to the site and we will continue to perform our sub-contract obligations.
Mr Harvey denied that he said words to the effect "a cheque for $19,000 in favour of Kennedy-Taylor has been drawn and I will track it down for you". Rather he asserted that the conversation was in terms or to the effect of the following:
Mr Lucanus:
K B Hutcherson are behind with their progress payments again and we are going to withdraw our labour from the site unless we receive payment forthwith. I believe that a joint account has been set up which you are controlling? Mr Harvey:
I am aware of a payment of approximately $15,000 to Kennedy Taylor is in the system and you should get it within a day or two, so I suggest you keep your men on site. Mr Lucanus
How do you know that K B Hutcherson will pay the money on? Mr Harvey
We have covered that.
Mr Lucanus
Okay, I will keep our men on site.
On 10 July 1990 an amount of $15,741.25 was paid to the applicant from the No. 2 Account. The construction of the site was completed in August 1990 and PSD entered into possession in or about that time. On or about 24 August 1990 KBH was placed either in receivership or provisional liquidation, and was wound up on 12 October 1990. It appears that at this time Mr Lucanus telephoned Mr Harvey regarding KBH's insolvency and was informed that any amounts outstanding should be followed up with the liquidator.
The applicant summarised PSD's representations in the conversation as follows:
1. KBH was in financial difficulties
2. PSD had investigated the creditworthiness of KBH and was satisfied that KBH would not cease business
3. PSD had established a bank account jointly with KBH into which PSD would henceforth be making all payments due to KBH with respect to the project (the joint account)
4. All payments to the applicant pursuant to the subcontract would henceforth be made from the joint account
5. KBH did not have direct access to the joint account
6. A cheque for $19,000 had already been drawn on the joint account in favour of the applicant for a progress payment then due under the subcontract
The applicant asserted that the conversation as so occurring gives rise to a legitimate claim by the applicant against PSD on a number of grounds:
1. The conversation evidences an oral contract by PSD to pay the applicant all monies due to it under its subcontract.
2. Alternatively, the conversation amounts to an oral guarantee by PSD of the obligations of KBH to the applicant under the subcontract.
3. Alternatively, PSD is estopped by the conversation from denying that it guaranteed to the applicant the payment of all monies due under the subcontract.
4. If there is no contract or promissory estoppel existing between the applicant and PSD, then the applicant is entitled to recover the monies due under the subcontract on the basis of a quantum meruit or because PSD has been unjustly enriched.
5. Mr Harvey's assurances of payment including the representations of the joint account were untrue and amounted to misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act. Mr Harvey is jointly liable with PSD for such contravention.
6. The applicant was induced by the representations to complete the subcontract to its detriment. Hence PSD is liable to the applicant in damages for the losses thereby sustained.
7. The representations were false to the knowledge of PSD and consequently fraudulent. PSD is therefore liable to the applicant for damages in deceit.
With regard to the first of these claims, it is my view that the applicant has no contractual entitlement to payment by PSD. Even if Mr Lucanus' version of the conversation is accepted - and I was inclined to believe his evidence in this regard - it did not amount to a contractual assumption of liability by PSD to the applicant in respect of the progress claims. Ultimately Mr Lucanus in cross-examination stated that he himself could not characterise the conversation as conferring any legal rights on the applicant against PSD. His evidence contained this exchange (see page 36 of the transcript):
Q. Did you regard this conversation as giving rise to some legal entitlement on the part of your company as against PSD?
A. It's not for me to say, I didn't think about that. That's something that I wouldn't have contemplated. All I knew is that we had a safeguard to be paid the outstanding moneys without their legal entitlements of it (sic).
Q. Did you think the conversation conferred some right upon your company as against PSD?
A. I wasn't looking for a right against PSD. I was looking at the safeguard of our payments. Q. Were you satisfied that sufficient safeguard was provided by KBH, not having direct access to the joint account?
A. Yes.
Mr Lucanus also gave the following evidence (page 41):
Q. Is the only thing you were particularly concerned to record that KBH could not get its hands on the money? A. Yes, that was my main concern because if they got the money we would not get it.
Q. And once that concern had been satisfied you were satisfied?
A. Correct.
Q. In your conversation with Mr Harvey on 9 July you did not signify to him in any way the possible extent of your company's claim against KBH for work it had already carried out?
A. No.
Q. And if you wanted some commitment from him that his company would pay that amount you would have given him some indication of the extent of the claim, would you not? A. It didn't come up in the conversation. The conversation was basically about KBH not getting their hands on the cheques. That was basically what the conversation was about.
Q. And it was basically limited to that subject, was it? A. Basically limited to that subject.
In my opinion the conversation between Mr Lucanus and Mr Harvey did not give rise to an offer by PSD to pay the applicant all monies due under the contract in return for a resumption of work on the job. The statement by Mr Harvey "we have covered that" did not constitute such an offer. Nor could the conversation be said to support the claim of an oral guarantee by PSD to the applicant. The words used by Mr Harvey, even on Mr Lucanus' account, did not constitute a promise by PSD to answer for the debts of KBH to the applicant. The most that could be surmised from this conversation was that the No. 2 Account or another joint account had been established to permit payments to subcontractors to be made and to which KBH did not have sole access.
Moreover, although KBH was wound up on 12 October 1990, no evidence was adduced to show that on 9 July 1990 PSD, through Mr Harvey, knew or should have known that KBH was in such financial difficulties that it would cease business. I accept the evidence of Mr Harvey that he had investigated the creditworthiness of KBH and that he had at that time a genuine belief in KBH's solvency. There is no evidence that that belief was without a reasonable basis. Thus even on the interpretation of the conversation most favourable to the applicant, it cannot be said that Mr Harvey was guilty of misleading and deceptive conduct towards the applicant.
In the course of the trial Mr Harvey acknowledged that the existence of a joint account was part of the conversation in conjunction with his own statement "we have covered that". In particular he said (page 87 of the transcript):
Q. And your version of this conversation - you were careful not to mention a joint account, but in your version of the conversation you deposed to the fact that he mentioned a joint account and you did not say anything to contradict him?
A. No.
Q. What you said is, "we've covered that". So it would be open for him to have inferred that that joint account to which he referred was a joint account between PSD and KBH?
A. Yes.
Q. Yes, and you did not want to disabuse him of any assumption that he might have made in that regard. A. I allowed him to make his own assumptions.
In my opinion Mr Harvey did represent to Mr Lucanus, at least by silence, that a joint account was established between PSD and KBH to permit payments to the subcontractors to which KBH did not have sole access. This representation was not literally true because there was no such joint account. But an account had been established between KBH and Elders at some time in June 1990 to serve exactly the same purpose, with Elders having the power to veto money, some of which at least was paid in by Elders itself, being paid out by KBH. The applicant in fact received two payments from the No. 2 account - $35,556 on 21 June 1990 and $15,741.25 on 10 July 1990, so it knew the position well. Mr Lucanus could not have believed there was a second joint account and he did not say that he did. If he had believed in such a thing during or after the conversation, he would have specifically mentioned it at some stage in his exchanges with Mr Harvey. There was no evidence of his having done so. There was no representation by Mr Harvey that all outstanding or future payments to the applicant would be made into and out of the joint account, nor was there any representation that KBH would have no access to the joint account at all. I believe Mr Harvey's evidence that he did not say that $19,000 had been drawn on the joint account in favour of the applicant, but rather, as in fact happened from the No. 2 account, that the applicant would receive a cheque for about $15,000.
I reject the applicant's claim that the making of the representations about the joint account and Mr Harvey's assurances of payment amounted to misleading and deceptive conduct by PSD in contravention of the Trade Practices Act. Taken in context, the literal falsity was not misleading and could not have induced the applicant into completing the work or caused any loss not otherwise suffered. Moreover, the representations made were not fraudulent. Thus the respondent can in no way be liable to the applicant for damages in deceit.
The representations upon which the applicant relies in relation to establish the alleged promissory estoppel are the same of those upon which it relies to establish its claim for breach of the Trade Practices Act. This claim of estoppel must fail for the same reasons as have caused the failure of the statutory claim.
Finally the applicant claimed in the alternative that the applicant is entitled to recover the monies due to it under the subcontract on the basis of quantum meruit or because PSD has been unjustly enriched. A party may be entitled to restitution or to recover on an indebitatus assumpsit or unjust enrichment basis for a quantum meruit even though there is no enforceable contract between them: Pavey and Matthews v. Paul (1987) 162 CLR 221 at 227-8 (per Mason, Wilson and Deane JJ). The applicant submitted that the essence of the remedy is to be found in a quotation from Federal Sugar Refining Co v. United States Equalisation Board 268 F.575 (1920) referred to in Goff and Jones, The Law of Restitution 3rd ed. (1986) at 614, where New York Federal District Court Judge Mayer is quoted as having said:
The point is whether the Defendant unjustly enriched itself by doing a wrong (my underlining) to the Plaintiff in such manner and in such circumstances that in equity and good conscience, the Defendant should not be permitted to retain that by which it has been enriched.
In the present case PSD has not been guilty of any unconscionability. It has not been enriched as a result of the work performed by the applicant as it had a contractual obligation to KBH for this work. Far from there being any element of injustice in the respondent retaining the benefit of the applicant's work, it would be unjust to impose on PSD an extra-contractual liability to pay again for the work. Accordingly this claim must fail.
The application will be dismissed with costs.
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