Monadelphous KT Pty Ltd v DDG Fortescue River Pty Ltd
[2016] WASC 224
•26 JULY 2016
MONADELPHOUS KT PTY LTD -v- DDG FORTESCUE RIVER PTY LTD [2016] WASC 224
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 224 | |
| Case No: | CIV:1387/2016 | 13 JUNE 2016 | |
| Coram: | KENNETH MARTIN J | 26/07/16 | |
| 34 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for the applicant/third defendant | ||
| B | |||
| PDF Version |
| Parties: | MONADELPHOUS KT PTY LTD DDG FORTESCUE RIVER PTY LTD TEC PILBARA PTY LTD TRANSALTA ENERGY (AUSTRALIA) PTY LTD |
Catchwords: | Contract Construction Deed of Guarantee Expiry of force of guarantee Duration ended at making of last milestone payment on practical completion Unresolved extra payment claims not notified to Guarantor in time |
Legislation: | Nil |
Case References: | Austman Pty Ltd v Mount Gibson Mining Ltd [2012] WASC 202 Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 Ralmana Pty Ltd v BGC Contracting Pty Ltd [2016] WASC 131 Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
DDG FORTESCUE RIVER PTY LTD
First Defendant
TEC PILBARA PTY LTD
Second Defendant
TRANSALTA ENERGY (AUSTRALIA) PTY LTD
Third Defendant
Catchwords:
Contract - Construction - Deed of Guarantee - Expiry of force of guarantee - Duration ended at making of last milestone payment on practical completion - Unresolved extra payment claims not notified to Guarantor in time
Legislation:
Nil
Result:
Judgment for the applicant/third defendant
Category: B
Representation:
Counsel:
Plaintiff : Mr S K Dharmananda SC & Mr B A Millar
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : Mr J A Thomson SC
Solicitors:
Plaintiff : Jones Day
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : Squire Patton Boggs
Case(s) referred to in judgment(s):
Austman Pty Ltd v Mount Gibson Mining Ltd [2012] WASC 202
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188
Ralmana Pty Ltd v BGC Contracting Pty Ltd [2016] WASC 131
Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598
1 KENNETH MARTIN J: Under its writ of summons with endorsed statement of claim of 10 March 2016, the plaintiff (Monadelphous) pursues the first defendant (DDG) for the liquidated amount of $18,750,907.52 plus interest (prayers C and D of the statement of claim). Separately, the plaintiff seeks from the second defendant (TEC) $14,145,421.46 plus interest (prayers F and G of the statement of claim).
2 Those liquidated amounts, approaching approximately $33 million in aggregate, are claimed from DDG and TEC by Monadelphous as contractual entitlements, argued as being due and payable pursuant to the terms of a written agreement of 16 January 2014 (the Construction Agreement), entered as between Monadelphous and DDG.
3 DDG signed the 16 January 2014 Construction Agreement with Monadelphous in its own right, but also in the capacity of Agent for and on behalf of TEC. DDG and TEC thereby contracted on a several basis with Monadelphous in fixed proportions - the proportions being relative to their respective participating interests in a Fortescue River Gas Pipeline Joint Venture (FRGPJV), in which venture the interest of DDG was 57%, whilst the junior interest of TEC was 43%.
4 Particulars of the elaborate written contractual arrangements entered as between Monadelphous and DDG (for itself and for TEC) are found in par 11 of Monadelphous' statement of claim. The particulars identify 19 components, or subcomponents, together making up the parties' Construction Agreement. The components include relevantly, as Part 1, a formal instrument of agreement and, as Part 2, the parties agreed General Conditions.
5 The liquidated amounts which are sought by Monadelphous under prayers C and F from DDG and TEC severally, are said to arise and to be due and payable to Monadelphous on the basis expressed under prayers A and B of the statement of claim, seeking:
A A declaration that [Monadelphous] is entitled under the [16 January 2014 Construction Agreement] to an extension of time to the date for practical completion of 88 days, pursuant to General Conditions cl 34.3 or,
B Further or alternatively to A above, a declaration that [Monadelphous] is entitled under the [agreement of 16 January 2014] to an extension of time to the date for practical completion of 6 days pursuant to General Conditions cl 34.3.
6 Relevantly to the present application, there is also a distinct liquidated claim by Monadelphous made against the third defendant, TransAlta. This claim is advanced on the basis of claimed entitlements under a further written instrument - a Deed of Guarantee (the Deed), which is identified in par 82 of the statement of claim, as entered between Monadelphous and TransAlta. This was, of course, the same day as the Construction Agreement entered between Monadelphous, DDG and TEC - namely, on 16 January 2014.
7 It is uncontroversial that TransAlta is the parent of TEC - which is its wholly owned corporate subsidiary. It is also clear TEC is the 'Guaranteed Party', for the purposes of the Deed of Guarantee. TransAlta is the Guarantor (of TEC's obligations under the Construction Agreement).
8 By par 83 of its statement of claim Monadelphous invokes cl 2.1(a) and 2.1(b) of the Deed of Guarantee (2.1(a) being a guarantee covenant and cl 2.1(b) being an indemnity covenant) to advance a claim against TransAlta, seeking the payment of what Monadelphous says are amounts due and payable to it by TEC, via prayers F, G and H of the statement of claim.
9 By the prayer for relief directed at TransAlta (under pars I through O of the statement of claim), Monadelphous seeks declarations as to its entitlement to indemnification under the Deed of Guarantee for a liquidated sum of $14,145,421.46, as well as interest claimed on that sum.
10 TransAlta has brought the present application under RSC O 16 against Monadelphous, seeking a defendant's summary judgment for dismissal of the guarantee claim made against it by Monadelphous. This application is advanced by TransAlta on the basis that such claims are, in effect, hopelessly unarguable and so, untenable.
11 Monadelphous firmly resists TransAlta's summary judgment dismissal application.
12 That is the present controversy for resolution.
The high threshold confronting the applicant (third defendant) - TransAlta
13 There is no dispute between the parties about the current state of the law, concerning what is a high onus that falls upon any applicant seeking summary judgment against another party. TransAlta accepts it bears that high onus to show Monadelphous' case against it is essentially untenable. As was observed by Mason CJ, Deane & Dawson JJ in Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598, 602 - 603, the court's power under RSC O 14 or RSC O 16 to order a summary judgment
must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there was no real question to be tried' (602).
- See as well, General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 129 and Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99.
14 In the present application, I am not rendering a final determination upon a preliminary issue - on the proper construction of terms in the Deed of Guarantee. What I am effectively being asked to conclude, at the behest of TransAlta, is that Monadelphous' claims against it are so obviously untenable that they cannot succeed at a trial and so, should be dismissed now: see General Steel Industries (128 - 129) (Barwick CJ).
The evidence on this application
15 Both TransAlta and Monadelphous each filed two affidavits from their respective witnesses, which were read and relied upon, for this application.
16 For TransAlta, it relies upon an affidavit of Aron Willis, sworn 18 April 2016, with nine annexures (of some 438 pages) and then beyond that, on Mr Willis' further affidavit, sworn 11 May 2016. Mr Willis is the managing director of the third defendant. He is also a director of the second defendant.
17 For Monadelphous, it reads and relies upon two affidavits from Malcolm Ian Kemball, sworn in opposition to the summary judgment application. Mr Kemball's first affidavit is sworn 4 May 2016. Mr Kemball is an employee of the plaintiff, describing himself as its senior project manager.
18 Beyond the evidence, I hold extensive written submissions, signed by senior counsel, that were lodged on behalf of TransAlta as applicant on 20 May 2016. Responding to those submissions are the written submissions of 3 June 2016, signed by senior and junior counsel on behalf Monadelphous.
19 In addition, I have had the assistance of the oral arguments to me, on 13 June 2016 by respective senior counsel on behalf of TransAlta and Monadelphous.
Principles of contractual construction applicable to the Deed of Guarantee
20 There was no controversy as between the parties in relation to what are now well traversed contractual interpretation principles towards written commercial contracts. The leading authority concerning the correct approach to contractual construction of a commercial contract is now the High Court's observations found in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188. To that end, the relevant words (text) of the clause or clauses at issue, the other surrounding contractual provisions (ie, the full contractual context) and then, the parties' (objectively assessed) intentions need to be ascertained.
21 Within the exercise in contractual construction of a commercial contract, a court will strive to reach a commercial outcome that is compatible with the parties' objectively assessed intentions.
22 In short, the touchstones of text, context and (objectively assessed) purpose, adopting a commercially sensible approach, are underlying and guiding principles for the interpretation exercise.
Four core arguments advancing TransAlta's asserted overwhelming defence against Monadelphous' claims under the Deed of Guarantee
23 The position of TransAlta upon the application is that it holds, in effect, four impregnable grounds of defence, all of which will necessarily be assessed to defeat Monadelphous' arguments invoking the Deed of Guarantee - and hence there is no need for a trial as Monadelphous' claim is untenable.
24 Taken from the written submissions of TransAlta, its four bulwarks of defence are these:
25 Ground 1:
The Guarantee expired before the commencement of the proceedings … The Plaintiff has been unable to provide any evidence that it gave a written notice to the Third Defendant in accordance with the Guarantee which would have postponed the expiry of the Guarantee in respect of the Plaintiff's claims in the proceedings.
26 Ground 2:
The Plaintiff cannot proceed against the Third Defendant to enforce its rights under the Guarantee in these proceedings without first having proceeded against the Second Defendant [ie, TEC] as [the plaintiff] failed to give 30 days prior written notice to the Third Defendant of intention to enforce its rights under the Guarantee …
27 Ground 3:
The claims in these proceedings are barred as they are outside the contractual limitation period stipulated in the Guarantee of 1 year of the events giving rise to the underlying liabilities …
28 Ground 4:
The Guarantee has no work to do as the limitation on the Third Defendant's liability is the Contract Sum as adjusted for the agreed provisional sums, and this amount has been paid …
29 The four barriers are to be evaluated upon a proper construction in context of the Deed of Guarantee of 16 January 2014. The written instrument is found as attachment AW6 to Mr Willis' first affidavit (pages 426 - 433). As a matter of pure convenience, I shall append it to these reasons as Schedule A. I take that course on the basis the instrument is of only a few pages length and, as I have said, these days any construction exercise concerning the true meaning of a particular clause or clauses in a written instrument requires me to assess the relevant clauses in the overall context of the instrument, to arrive at a commercially sensible interpretation of the provisions of the instrument as a whole.
Evaluation: grounds 2 - 4
30 In the reasons that follow, I will extend a detailed consideration of the arguments only to ground 1. That is because, on my assessment, the arguments raised under grounds 2, 3 and 4 by TransAlta, whilst respectable longer term points, cannot be presently assessed as being so overwhelming on my view, that the plaintiff's Deed of Guarantee claims against TransAlta must necessarily fail.
Ground 2
31 In respect of ground 2, TransAlta's argument proceeds on the basis of a suggested transgression by Monadelphous as against cl 2.2(b) of the Deed of Guarantee. That is advanced in relation to Monadelphous' failure to provide 30 days' notice to the Guaranteed Party (ie, to TEC). As seen under cl 1.1 of the Deed of Guarantee, the term Guaranteed Party, there seen in bold, is defined 'means TEC'.
32 Clause 2.2(b) does not require a provision of 30 days' notice to TransAlta, prior to Monadelphous moving to enforce its rights under the Deed of Guarantee as against TransAlta.
33 It will be seen then that there is an error in ground 2 (the ground refers to written notice required to be given to the third defendant - ie, to TransAlta). That is not what cl 2.2(b) says - the 30 days' notice is to the Guaranteed Party. So, the correct reference is to TEC, not to TransAlta.
34 Factually (by reference to attachment AW7), it is clear Monadelphous did give a written notice to TEC, on 15 February 2016. Monadelphous then issued the present proceedings at the same time, this was against both TEC as second defendant and TransAlta as third defendant. That was by Monadelphous' writ of summons with an endorsed statement of claim of 10 March 2016, causing this action.
35 Clause 2.2(b) is not totally clear in its meaning, as regards the use of the phrase 'may proceed' and then, a following phrase, 'without first having proceeded against the Guaranteed Party'. Assuming the word 'proceed' means to 'commence litigation against someone', then here, the writ Monadelphous has issued was issued simultaneously against DDG, TEC and TransAlta on 10 March 2016, not solely as against TransAlta.
36 Hence, it is more than arguable that cl 2.2(b) does not apply, as the present scenario is not one of Monadelphous proceeding under the Deed of Guarantee only against TransAlta, without having first proceeded against TEC.
37 As seen, Monadelphous in this litigation has actually proceeded against both TransAlta and TEC at the same time (as well as against DDG).
38 Even if the latter parts of the somewhat unclear cl 2.2(b) do require an elapsed period of 30 days to run following the giving of written notice to TEC before commencement of suit against TransAlta (in circumstances where it can be accepted factually that only 24 days had elapsed between the giving of written notice to TEC on 15 February 2016 and the commencement of this action against all three defendant parties on 10 March 2015), the consequence of such a six day premature temporal violation are left wholly unspecified.
39 Hence, an act of omission by giving only 24 days' prior notice (rather than giving 30 days' prior notice to TEC), would not on its face present to me as necessarily doing anything other than opening up the potential scope for a claim by TEC to breach damages, arising out of what looks an ostensibly minor transgression as regards the denial of six days' extra notice not given to TEC, before a commencement of proceedings against its parent TransAlta.
40 Moreover, I would observe that cl 2.2 taken as a whole within the surrounding contextual framework of the wider horizon of subcl 2.2(a) through 2.2(g), in its overall positional flavour, appears to be an expansive clause, as regards either preserving, continuing or widening the parental responsibility exposures of TransAlta, under this Deed of Guarantee to Monadelphous. That expansive flavour of cl 2.2 can be contrasted to a somewhat opposite limiting of obligation sentiment, detectable out of following cl 2.3, as regards exclusions and limitations of liability which set down for TransAlta under the Deed.
41 In all the circumstances, I need say no more about ground 2 other than that its terms do not presently lead me to an overwhelming conclusion that Monadelphous' claim made upon the Deed of Guarantee is necessarily rendered deficient, upon this head of argument, even if there was six days short notice given to TEC.
Ground 3
42 For ground 3, TransAlta's argument essentially rests upon cl 2.3(c) of the Deed of Guarantee. This clause provides:
Any claims for recovery against the Guarantor under this deed shall be brought within 1 year of the event giving rise to the underlying liability.
43 I assume for the purposes of the present arguments, that the claim for recovery against TransAlta was by the commencement of the present litigation. As seen, that happened on 10 March 2016, by the issue of the present civil proceedings, CIV 1387 of 2016.
44 I will also assume for the purposes of interpreting this subclause that its reference to an 'underlying liability', is a reference to the underlying liability of TransAlta. It is necessary to render those two assumptions for this ground to advance, in an attempt to evaluate the correct meaning of the word 'event' - which is seen used in the phrase 'shall be brought within 1 year of the event', as regards the underlying liability of TransAlta under the Deed of Guarantee.
45 However, at the end it is by no means rendered unambiguously clear to me what the relevant 'event' is, for the purposes of assessing the true meaning of cl 2.3(c), at this stage.
46 On the submissions of TransAlta, it would contend that the relevant event or events (see par 45 of its written submissions and footnotes 30 and 31), are the matters pleaded in pars 40 and 57 of Monadelphous' statement of claim. In other words, the event or events are DDG's failure to provide (as alleged) adequate site access, to enable a performance by Monadelphous of the works under the contract, in the period between 24 June 2014 and 3 March 2015.
47 On the other hand, the true meaning of the word 'event', in a context of something giving rise to the underlying liability of TransAlta as Guarantor under the Deed of Guarantee, could arguably be read as a reference to matters which via cl 2.1(a) or 2.1(b), in effect, trigger the Deed of Guarantee obligations of TransAlta. As seen under those subclauses, both a guarantee and an indemnity covenant are respectively provided, by cl 2.1(a) and cl 2.1(b). They are not obligations conditioned upon any preceding demand first needing to be issued to the Guarantor. Their precise interpretation must remain a matter for a trial.
48 Prima facie, by reference to cl 2.1(a), it is the phenomenon of moneys becoming due and payable to the 'Beneficiary' (ie, to Monadelphous) in respect of TEC's proportionate participating interest share, which is the 'event' that exposes the Guarantor of TEC's obligations (ie, TransAlta) to its liability to Monadelphous, upon its cl 2.1(a) guarantee at that time.
49 The question then is, when do the relevantly claimed extra moneys (not damages) said to be payable above the milestone specified lump sum amounts by reason of an argued application of clauses within the General Conditions of the Construction Agreement become due and payable to Monadelphous by DDG (for TEC)?
50 To generate the amounts claimed under pars 66(a) and 66(b) of the statement of claim, there is needed to be established, first, an extension of time for Monadelphous that is granted to it going beyond the otherwise nominated date of practical completion (of 88 days) pursuant to General Condition cl 34.3. Second, there is a need for a quantified liquidated amount of money to be arrived at, in respect of such an extension of time - following and applying General Condition cl 34.9 for $27,928,314.97 - with the lesser proportionate share of TEC, on a calculation of 43% of that amount.
51 Likewise, I also note the alternative claim for a lesser extension of time. This is put in the alternative, under the statement of claim pars 72(b) and (c), for a claimed liquidated amount of $847,249.28 then, under pars 80(a) and (b) of the statement of claim, for the amount of $4,120,764.73, claimed pursuant to cl 36.4 of the General Conditions. Those extra funds are claimed by Monadelphous against TEC on the basis of a variation claim, asserted as payable by reason of Monadelphous complying with directions said to have been issued by DDG to require Monadelphous to perform additional work, which work is then said by Monadelphous to be beyond the scope of its original Scope of Work.
52 On the counterarguments of Monadelphous, the relevant 'event' for the purposes of cl 2.3(c), only arises, given present circumstances of disputation over whether such amounts have, in truth, ever become due and payable to Monadelphous by the Agent (on behalf of TEC) at a much later time, once the current disputation over this claimed extra payments issue is resolved - possibly in these proceedings.
53 A troubling lack of clarity about the proper meaning of the word 'event' as used in cl 2.3(c), for the purpose of raising a one-year bar against claims for recovery - leaves me in a state of uncertainty about the correct application of this clause to the underlying circumstances now presenting. That must await clarification at the trial.
54 Given all that, it would not be appropriate to conclude that TransAlta, by this ground alone, holds an absolutely impregnable defence against Monadelphous' claims, based upon a one-year time limit proved as having fully run, prior to the issue of Monadelphous' writ of 10 March 2016. Ground 3, therefore, is also insufficient at this time to end this action against TransAlta.
Ground 4
55 In relation to ground 4, the argument, effectively, contends that the defined term 'Contract Sum', seen used in the Deed of Guarantee (in cl 2.1(a) and cl 2.3(b)), means and carries exactly the same meaning as a similar defined term 'contract sum' - as that term is found defined in cl 1 of the General Conditions of the Construction Agreement.
56 At that place, the term is seen to be defined as:
In the Contract, except where the context otherwise requires …
contract sum Means:
a) where the Owner accepted a lump sum, the lump sum;
b) … or
c) …,
including provisional sums but excluding any additions or deductions which may be required to be made under the Contract.
57 Essentially, the TransAlta argument is that the definition of 'contract sum' in the Construction Agreement, in so far as it expressly excludes additions or deductions, is key. That is then coupled to the fact that TransAlta argues that Monadelphous has obviously received from DDG, (as Agent for TEC), all amounts of money that were payable in accord with Part 4 - Payment Schedule referred to via item 28 in pt A of the General Conditions: see pages 92 and 117 of attachment AW1 to Mr Willis' first affidavit.
58 TransAlta says that the same definitions from the Construction Agreement of 16 January 2014, must necessarily be imported across and into the Deed of Guarantee under its definition covenant, cl 1.1. The Deed says:
Subject to clause 1.2, words and expressions defined in the Agreement have the same meaning when used in this deed, unless the context requires otherwise …
59 In the Deed of Guarantee, the term 'Contract Sum' is seen used with an upper case C and S. That is in a context of the references to that term as seen under cl 2.1(a) and cl 2.3(b).
60 The rival contentions of the parties on this ground are, first by TransAlta, that Monadelphous has received all milestone payments that were due from the Agent (DDG). Then, importing the Construction Agreement's definition of 'contract sum' across from that agreement into the Deed of Guarantee, the present liquidated claims, in respect of what is an extension of time extra allowance sum, or a variation sum, must be seen to be expressly excluded - so as to fall outside the definition of a 'contract sum'. Such 'additions or deductions', of this character, are expressly excluded from that term, argues TransAlta.
61 The answering argument of Monadelphous is that it is wrong as a matter of the proper contractual interpretation of the Deed of Guarantee to blandly import across the meaning of the term 'contract sum' from the Construction Agreement. Monadelphous says that here, the overall context very much does require that the term 'Contract Sum', be interpreted otherwise, used within the Deed of Guarantee. Monadelphous points out there is scope under the Construction Agreement for a 'contract sum' to be increased or reduced - where the Owner's Representative has approved and priced the claimed variation: see General Condition cl 36.4. See also General Condition cl 41.3.
62 At the end, faced with such rival positions, I am not persuaded that ground 4, overwhelmingly, as a matter of construction, dictates that the Deed of Guarantee has in effect, no work to do because all the 'Contract Sum', (as the term is defined by the Deed of Guarantee), has been paid to and received by Monadelphous. In short, I hold two basic reservations. First, the result contended for on the face of it presents to me as arguably uncommercial - in the sense that, objectively assessed, the parties obviously contemplated, for this project, a capacity for additions and deductions to the specified milestone amounts of moneys payable under the Construction Agreement. Adjustments of this character are hardly uncommon, particularly for a $100 million construction project of this magnitude.
63 My second concern is that TransAlta's argument also presents as somewhat 'hair trigger' in character. Again, I hold a concern about whether its acceptance now would truly reflect the parties' objectively assessed intent, as regards the commercial workings of this Deed of Guarantee. Hence, I do not accept ground 4.
64 Those conclusions thus far as regards grounds 2, 3 and 4 expressed in summary fashion, leave open to be determined what was the primary bulwark argument by TransAlta, fashioned as its ground 1. It is to that last argument of TransAlta seeking summary judgment I now turn.
Ground 1: argued expiry of the force of this Deed of Guarantee
65 TransAlta's argument is again tied to the proper construction and interpretation of cl 2.7 of the Deed of Guarantee. Because the whole Deed is appended to these reasons, I need set out specifically only cl 2.7(a) and (b). (Clause 2.7(c) whilst forming a part of the surrounding context does not, on my assessment, directly bear upon the ensuing arguments.)
66 Clauses 2.7(a) and (b) of the Deed of Guarantee provide respectively:
(a) Subject to the provisions of this clause 2.7, the obligations of the Guarantor under this deed is a continuing security and remains in full force until the final milestone payment is made by the FRGP JV in accordance with Part 4 - Payment Schedule.
(b) In the event that the beneficiary has notified the Guarantor of a Claim under the Agreement prior to the applicable date in clause 2.7(a), then the obligations of the Guarantor will not terminate until that Claim:
(i) has been finally agreed or determined; or
(ii) if agreed or determined to be payable by the Guaranteed Party, has been paid in full by the Guaranteed Party or the Guarantor.
(c) …
(emphasis added)
67 Some of the arguments now relied upon by TransAlta resonate or overlap with its no work to do for the guarantee arguments - a submission made by reference to the phrase 'Contract Sum', under ground 4.
68 However, this present argument as I assessed it, does not rest upon accepting the meaning of the term 'Contract Sum' in the Deed of Guarantee as excluding additions. This ground's argument of TransAlta is advanced irrespective of the meaning of that term.
69 According to TransAlta's written submissions, ground 1 delivers to it an impregnable defence to Monadelphous' money claim against it under the Deed of Guarantee. This is because (TransAlta's submissions pars 28 - 32):
28. Under clause 2.7(a), the Guarantee would expire when the final milestone payment was made in accordance with Part 4 - Payment Schedule, unless clause 2.7(b) applies.
29. This final milestone payment was paid in May 2015. A Certificate of Practical Completion had been issued by the Owner's Representative on 14 March 2015 with minor work outstanding which did not affect the use of the works for its intended purpose. The Plaintiff issued an invoice for the fifth and final milestone payment on 2 April 2015. It was paid on 6 May 2015. A further claim in respect of minor works which remained outstanding on the date of issue of the Practical Completion Certificate and did not affect the use of the works was invoiced for on 23 April 2015 and paid on 20 May 2015.
- (The above factual matters as to the timing and receipt of payments made and received are dealt with in various paragraphs of Mr Aron Willis' first affidavit, sworn 18 April 2016. They did not present at the arguments before me to be at all factually controversial.) The submissions continue:
30. The Plaintiff's evidence contains an admission that the original Contract Sum of $96,195,891 and the provisional sums totalling $3,661,066 have been paid (see par 25 of Malcolm Kemball's affidavit, sworn 4 May 2016).
Table continues overleaf:
PART 4 - PAYMENT SCHEDULE
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| 10% |
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| 40% |
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| 90% |
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| 100% |
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71 TransAlta's submissions then resume upon ground 1:
31. Under cl 2.7(b), the Guarantee [obligations of TransAlta] would not expire upon the payment of the final milestone payment under Part 4 - Payment Schedule if notice was provided by the Plaintiff to the Third Defendant of a Claim (of a kind now the subject of the present proceedings) under the Construction Contract prior to the expiry date.
72 I note that the word used in cl 2.7(b) is not 'notice'. Rather, the word used is 'notified', in a context of the phrase 'the Beneficiary has notified the Guarantor of a Claim under the Agreement'.
73 Nevertheless, TransAlta points out that via cl 3.1 of the Deed of Guarantee, cl 7 of the Construction Agreement (referring to cl 7 of the General Conditions in the Construction Agreement) must still apply to any notice, demand, consent, approval, and other communication required or given by any party to another party pursuant to or in connection with this Deed.
74 Clause 7 of the General Conditions (found at page 37 to Mr Willis' first affidavit) within annexure AW1, as a part of the General Conditions of Contract, deals with notices. It says:
7.1 a notice (and other documents, including notices that are stated in this Contract to be in writing) shall be in writing signed by or on behalf of the person and shall be deemed to have been given and received …
75 TransAlta submits that, from cl 3.1 of the Deed of Guarantee and General Condition 7.1 of the Agreement, the word 'notified' as used in cl 2.7(b), is not, in effect, open to a broader interpretation than the word 'notice'. It would not allow, for instance, the provision of a non-written medium of communication. Notice must be given in writing. That submission must be accepted in my view - given the overall seriousness and importance of a notice under a guarantee or indemnity obligations of a Guarantor. That is no casual event. The need for it to be formally enlivened by writing is obvious and understandable.
76 TransAlta's factual submission is that there was no notification given in writing to it emanating from Monadelphous as regards the issuance of a 'Claim' against TEC - given prior to the 'applicable date' under cl 2.7(a).
77 That raises a question as to 'what is the applicable date under that subclause?' It must be, in my view, the date when the final milestone payment is made on behalf of the FRGPJV (in effect, as paid by the Agent, DDG) to accord with the Part 4 - Payment Schedule. Reference to the 'Part 4 - Payment Schedule' must be read as a reference, in turn, to the payment schedule in the Construction Agreement as already identified and which I earlier set out (from page 117 of Mr Willis' affidavit, within attachment AW1).
78 The payment schedule, as already seen, expressly identifies five milestone events. The last of these, namely milestone 5, is when a practical completion certificate is issued by the Owner's Representative. That event carries with it the payment entitlement in Monadelphous to the last 10% of the Contract Value - to make up then a payment of 100% of Contract Value - seen to be spread progressively across the five milestone events, culminating in the last (fifth) payment at practical completion.
79 It is clear beyond all argument in present circumstances that:
(a) a final milestone payment was made either on 6 May 2015; or
(b) after practical completion in respect of some minor works, being $158,723.22 (excluding GST) received after the issue of the practical completion certificate, on 20 May 2015.
80 I would assess the 'final milestone payment' for the purposes of cl 2.7(a) as the fifth and practical completion payment which was, as per the Part 4 - Payment Schedule, the last listed payment on 6 May 2015, at which time the residual 10% of Contract Value is payable, making up then a full payment cross five steps of 100% of Contract Value. In this process, I need of course to interpret the meaning of the Deed of Guarantee harmoniously and in conjunction with what is the contemporaneously dated Construction Agreement, to which interlinking references are made.
81 The construction exercise also needs to be temporally oriented at two written documents: the Deed of Guarantee and the Construction Agreement by reference to what they mean at 16 January 2014. In other words, those documents are not to be interpreted by reference to subsequently occurring events after they were perfected.
82 On the face of it, a correct interpretation of cl 2.7(a) as regards the phrase 'final milestone payment is made' ought, on my assessment, to be the time at which the practical completion payment is made. That time is established uncontroversially, as a matter of evidence, to be 6 May 2015.
83 That there might be further moneys claimed by Monadelphous not yet received after being sought as progress payments under milestone event 4, does not effect that interpretation. Variation and extension of time claims which are submitted and pending resolution, would not, on my assessment, affect the identification within cl 2.7(a) of the objectively assessed chosen temporal cut-off point - made applicable for the duration of the obligations of the Guarantor under the Deed of Guarantee as a continuing security - at a point that is identified in the instrument as its temporal end of life (efficacy).
84 As regards the duration of the obligations of TransAlta as Guarantor, the existence of unresolved claims for more money claimed as additions, variations or extensions in respect of extra moneys sought as due at the fourth milestone along the progressive percentage completion (for 50% of the Contract Value at the fourth milestone), is seen to be catered for - by what is a cl 2.7(b) extension and saving provision in the Deed of Guarantee. This is achieved, first, by the introductory precursor to par 2.7(a) (by the phrase 'Subject to the provisions of this clause 2.7'), and then, by express terms in the following and obviously interconnected cl 2.7(b).
85 The text of cl 2.7(b) objectively assessed, sets down what is an agreed mechanism to be followed for inhibiting what will otherwise be an automatic temporal expiry of the force of the guarantee obligations of TransAlta, upon the making of the final milestone payment. But an extension in the duration of those obligations will be obtained where the Guarantor has received from Monadelphous a notification. This must be a written communication by which TransAlta is 'notified' of a 'Claim' - namely a claim under the Agreement against DDG.
86 But, the terms of cl 2.7(b) clearly require that TransAlta be notified, 'prior to' what is the 'applicable date' under cl 2.7(a). On the facts put before me that notification did not happen, within the allowed timeframe, as is required under the contractual mechanisms these parties agreed upon. There is nothing in writing meeting that required description. I can see no sensible level of controversy arising about the giving of written notice. There was nothing of that ilk that issued.
87 I must in the end, accept as demonstrably correct TransAlta's ground 1 submission that, in order for it to be properly 'notified' under cl 2.7(b), TransAlta would need to receive something written from Monadelphous to meet cl 2.7(b). TransAlta should get something 'in writing' from Monadelphous and that must happen prior to 6 May 2015.
88 Is there anything which arguably meets that guarantee obligation extension and preservation entitlement? Monadelphous argues there is. By its written submissions it contends that there was sufficient notification: see pars 107 - 112. However, on review, those submissions proceed on a basis of advocating that either informal or verbal communications are acceptable, towards TransAlta being 'notified', for instance, by what was said verbally at weekly meetings. Monadelphous would argue, that that genre of notification is acceptable for the purpose of TransAlta being 'notified' under cl 2.7(b). I disagree. What Monadelphous argues is on my assessment, uncommercial and unconvincing.
89 I reject Monadelphous' lesser notification arguments as untenable since, in my view, the word 'notified' as used in cl 2.7(b), by reason of cl 3.1, must be read with cl 7 of the General Conditions to the Construction Agreement. That path is expressly determinative in respect of laying down a firm requirement for a need for writing, in respect of advancing a 'Claim' against TransAlta, made prior to 6 May 2015. No such document has been identified by Monadelphous. There has been more than ample opportunity to find such a document if it existed. It has not asked for more time to search for such a document.
90 My interpretation is buttressed by the overall commercial seriousness in context of a notification event to a Guarantor that is required for the purposes of extending the temporal duration of guarantee obligations under cl 2.7(b) which would otherwise expire. The formality of what is contemplated under the overall cl 2.7 regime, with cl 2.7(a) subjected, in effect, at the outset to the ensuing subclauses 2.7(b)'s requirements, is stark. The textual regime set down does not, as a matter of business common sense and commerciality, lend itself, even arguably, to the treating of such an issue, casually or informally. There is no room for taking a view of notification as being diminished in formality, so as to tolerate non-written or informal verbal communications. That view would be inconsistent with and disrespect the express notification regime that these parties chose for themselves via cl 3.1 and cl 7 of the General Conditions. That is not, on my view, even arguably, a harsh or uncommercial interpretation of the clause that does not accord with business common sense. To the contrary, that interpretation gives effect to the force of the clear text in both cl 2.7(b) and in cl 3.1 of the Deed of Guarantee. Their joint role reflect sensible business-like obligations documenting what are serious matters of obligation.
91 The terms of this Deed of Guarantee, objectively assessed, record a sophisticated business deal trade-off, in terms of a range of accepted mutual obligations. TransAlta, a parent corporation, is effectively seen as underwriting the obligations of its subsidiary, TEC, to the extent of TEC's participating interest in a joint venture, being TEC's share of those obligations (43%). But the ambit of the support obligations assumed by TransAlta can be seen to be very carefully delineated. That can be assessed objectively, both in the magnitude of and in the temporal duration of the accepted obligations of TransAlta as Guarantor. The provisions displayed in the text of the Deed of Guarantee record a carefully regulated and controlled regime of mutual rights and obligations - on each side, reflecting the likely outcomes of a negotiated bargain reached between sophisticated commercial parties.
92 Here, the overriding objective guiding feature, from my perspective, is the parties' chosen text. A discernibly regulated regime has been carefully set down by sophisticated parties to expressly cater for what would otherwise be the automatic expiry of the obligations of TransAlta as Guarantor - at the time of the making of the (last) (fifth) final milestone payment. The cl 2.7(b) extension provisions are carefully controlled. Their content and regime needs to be respected and not sidestepped as inconvenient. In my view, they have clearly not been met here. Arguments to the contrary by Monadelphous are not credible - put against ground 1. There does not need to be a trial to reach this, in the end, overwhelmingly obvious conclusion.
93 I have not overlooked earlier arguments by Monadelphous concerning the argued non-applicability of the guarantee expiry provisions of cl 2.7(a), expressed under pars 99 through 106 of Monadelphous' written submissions.
94 At par 100, Monadelphous puts a plenary submission that:
… TransAlta's obligations under the Guarantee continue until the time that [Monadelphous] has received payment of all amounts to which it [claims] it is entitled [to from TEC] under the Contract.
95 I cannot accept that bland assertion. On my assessment, that is a bootstraps argument which ignores the force of the express text of cl 2.7(a). It assumes and presumes an entitlement of Monadelphous under the Construction Agreement against DDG (and TEC) - which could prove at the end to be problematic - in terms of its ultimate establishment in due course. An openendness until the claim is finally determined by a court, or possibly even an appeal court, is inconsistent with a quest for obligation certainty in the objective flavour of terms setting a temporally limited duration of the guarantee obligations and the expressly imposed need for the guarantee's specified duration to be extended beyond the nominated life span, by invoking a provision such as cl 2.7(b):
96 By par 101, Monadelphous puts a submission as to accrued entitlements prior to its guarantee covenant expiring and surviving the temporal termination. That submission is put by reference to the well-known authority of McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 477 (Dixon CJ). But again, however, the submission, on my assessment, is out of harmony with the text of cl 2.7(a) and cl 2.7(b) and the Part 4 - Payment Schedule component milestones (set out earlier from page 117 of Mr Willis' first affidavit). Furthermore, they are inconsistent with the chosen scenario of approved payment under General Conditions, where an entitlement to be paid moneys must first be accepted and signed off by the Owner's Representative, to obtain an extension of time reimbursement amount to be quantified, or for payment of a claimed variation amount that is allowed. Claimed extra's amounts of that character are more than capable of being amounts (if they remain in dispute) that are notified under cl 2.7(b) (by writing). There is nothing unfair or uncommercial about that requirement.
97 Monadelphous makes a further submission at par 102:
The exact date on which MKT's rights in respect of each of its claims in fact accrued [presumably against DDG and TEC under the construction agreement] is a matter for trial.
- Again, however, the submission presents to me as being out of harmony with the expressly applicable text seen under cl 2.7(a) and (b) and the Part 4 - Payment Schedule, in the General Conditions.
98 Monadelphous, at par 104 of its submissions, contends it is arguable that it holds 'accrued rights' against TransAlta. That is based upon an argument that the Owner's Representative, DDG, (as Agent for TEC) under the Construction Agreement
(a) … should have properly assessed amounts claimed by MKT in accordance with the requirements of the Contract. At that time, it acquired a right to payment of amounts (that ought to have been properly assessed by DDG). [It says Monadelphous'] rights against TransAlta under the Guarantee also accrued at that time.
…
(c) MKT's claim for an extension of time was made with full particulars submitted [ie, to DDG as the Owner's Representative] on 17 March 2015. DDG/TEC was obliged to assess that claim by 14 April 2014 with its rights to an 88 day extension of time accruing on that date.
(d) As regards MKT claims for costs consequent on that extension of time, full particulars were submitted on various dates in March 2015, with rights to payment accruing in April 2015 (and following on from the extension of time which ought to have been granted).
99 These arguments culminate at par 105:
Based on the arguments above, MKT's entitlements under the Guarantee in respect of the claims the subject of these proceedings all accrued prior to the 'final milestone payment' being made on 20 May 2016.
100 Those submissions rely heavily on the applicability of General Conditions within the Construction Agreement. In my reasons for decision in Ralmana Pty Ltd v BGC Contracting Pty Ltd [2016] WASC 131, I considered some similar General Conditions in the context of a strikeout application. There, the respondent was contending, in the absence of EOTs granted by that Owner's Representative, that the claimant held an entitlement to ask a court to effectively step into the shoes of an Owner's Representative and to, years later, render the missing assessment of the representative, in order to generate an entitlement to a liquidated sum. That argument has not been precisely replicated here by Monadelphous. But its argument asserting accrued rights, in the absence of any suggestion that it holds, or was able to obtain a certificate from the Owner's Representative granting an extension of time, or approving the payment for a quantified allowance amount - seems to founder on similar misplaced premises.
101 Monadelphous' argument seems, on my assessment, to confuse an accrued right to a payment of a liquidated amount following the issue of a progress certificate sanctioning the payment, with a distinct claim to breach damages. The distinct claim is a claim for damages, based upon a contended breach of General Conditions, presumably by acts or omissions of the Owner's Representative, in failing to issue within the allowable time, a claimed certificate by a contractor in the position of Monadelphous under General Conditions cl 37.2, cl 37.2A or cl 37.4: see also General Condition 41.3 as regards to 'Claims'.
102 An eventually proven entitlement to damages by Monadelphous as against DDG or TEC (if that transpires), could form the basis of a different claim, advanced under the Deed of Guarantee under its indemnification covenant manifesting as cl 2.1(b). But a breach damages claim does not, on my assessment, fall under the regime of cl 2.1(a), in terms of presently showing a basis for Monadelphous to hold an entitlement to liquidated sums of money which had become 'due and payable' to Monadelphous by the Agent (DDG): see particularly cl 34.3 and the last paragraph of that General Condition which says:
It is a condition precedent to the Contractor being entitled to claim an EOT that it complies strictly with this sub-clause 34.3, subclause 34.11 and clause 41. The Contractor's failure to comply strictly with this subclause 34.3, subclause 34.11 or clause 41 will bar and invalidate its claim for that EOT and release the Owner from any liability arising out of or in connection with that EOT.
General condition cl 34.9(a) and cl 34.9(c)
103 Whilst it might be that the issuing of a progress claim certificate by an Owner's Representative could engender a scenario of an accrued right to payment under General Condition 37.2 (see, for instance, FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340, which I consider in Austman Pty Ltd v Mount Gibson Mining Ltd [2012] WASC 202 at [39]), the mere assertion of an accrued entitlement based on a submission of a 'Claim' and which has not yet been accepted or dealt with by the Owner's Representative within the 28-day timeframe of the General Conditions (cl 41.3), by my assessment, strays much too far from being assessed as an accrued right to a payment of 'moneys' which are due and payable.
104 Again, an unresolved possible damages and indemnification claim scenario (that may lead itself to dispute resolution under cl 42 of the General Conditions) looks to be a matter capable of being preserved from a Guarantor's obligations perspective - under the chosen regime to extend and do just that, as expressly set down under cl 2.7(b) of the Deed of Guarantee. But the thresholds to satisfy cl 2.7(b) have not, even arguably, been attempted to be met here - let alone met.
105 In all the circumstances, I have been satisfied at the end that the third defendant has made good an overwhelming defence argument under its ground 1. TEC's obligations under the Deed of Guarantee, in respect of a payment of moneys to Monadelphous, ended at 6 May 2015. They were not the subject of any preservation against TransAlta by a relevant notification from Monadelphous that can possibly meet cl 2.7(b), before time ran out - for extra claims.
106 On that basis, there should be a summary judgment as is sought by the third defendant and so, the claim against it by Monadelphous dismissed, as untenable. The costs of the application should follow that event. The matter was complex and was helpfully and comprehensively argued by senior counsel on both sides. Given all that, the applicable scale limits should, prima facie, be removed for the purposes of a taxation by the third defendant in the circumstances.
Schedule A
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8
1