PHHH Investments No 2 Pty Ltd v United Commercial Projects Pty Ltd
[2018] VCC 1007
•6 July 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-18-01563
| PHHH INVESTMENTS NO 2 PTY LTD (ACN 602 191 506) | Plaintiff |
| v | |
| UNITED COMMERCIAL PROJECTS PTY LTD (ACN 110 860 369) | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 June 2018 | |
DATE OF RULING: | 6 July 2018 | |
CASE MAY BE CITED AS: | PHHH Investments No 2 Pty Ltd v United Commercial Projects Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1007 | |
REASONS FOR RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: PRACTICE AND PROCEDURE – judgment and orders – judgment entered in default of defence – application to set aside default judgment – whether judgment entered irregularly – whether causes of action properly pleaded – whether defence on the merits existed
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic); County Court Civil Procedure Rules 2008 (Vic); Civil Procedure Act 2010 (Vic)
Cases Cited:Boral Resources (Vic) Pty Ltd & Ors v Construction Forestry Mining and Energy Union [2014] VSC 429; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2013) 41 VR 636; Hardy v Gadens Lawyers (a firm) [2008] VSC 603; Jindra v Tech-Rentals Pty Ltd & Anor [1999] VSC 206; Kostokanellis v Allen [1974] VR 596; Lubura v Nezirevic [2013] VSCA 215; Westpac Banking Corp v Perri [2013] VSC 290; WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Phillpot | Noble Lawyers |
| For the Defendant | Mr N Andreou | Macpherson & Kelly |
HIS HONOUR:
Nature of application
1 The application is made by the defendant pursuant to Rule 21.07 of the County Court Civil Procedure Rules 2008 to set aside a judgment entered in default of defence on 6 June 2018.
Background
2 The parties have a substantial history of litigation against each other. This involved disputes under the Building and Construction Industry Security of Payment Act 2002 (Vic), Supreme Court litigation and the present litigation in this Court. This litigation included two separate proceedings heard by Riordan J in the Supreme Court earlier this year.
3 This case concerns a property at 282-284 Victoria Street, Brunswick (“the Property”) owned by the plaintiff (“PI”). The defendant (“UCP”) conducts business as a builder. In March 2016, PI, as the owner, and UCP, as the contractor, entered a contract for alterations and additions to the property. The contract price was $3.8 million. The architects for the project were Insite Architects (“the architect”).
4 On 12 April 2018, PI filed the writ and statement of claim.
5 On 30 April 2018, UCP filed an appearance.
6 On 24 May 2018, UCP’s lawyers wrote to PI’s lawyers seeking proposed procedural orders for the proceeding. At this time, UCP advised that it wanted until 15 June to file its defence and counterclaim. Thereafter, until 1 June, the parties’ lawyers exchanged correspondence in which UCP reiterated its request for extra time to produce its pleading, and PI queried why it was necessary.
7 On 6 June 2018, PI entered default judgment and advised UCP the following day. PI demanded payment in the sum of $116,385.68. This was the amount of the judgment, less $198,129.28 ordered by the County Court in favour of UCP in August 2017, together with $15,524.28 for statutory interest on that sum.
8 UCP applied by Summons filed on 12 June 2018 to set aside the judgment and later exhibited its proposed defence and counterclaim to a supporting affidavit.
Grounds of application
9 UCP contended that the default judgment should be set aside because:
(a) the judgment was irregularly entered insofar as the cause of action was not properly pleaded in accordance with the County Court Civil Procedure Rules 2008 (Vic) (“the Rules”); and
(b) it had a defence on the merits.
Irregular judgment
10 UCP’s initial ground of complaint was that PI failed to plead its contractual claim properly. It argued that there was clear authority to the effect that both claims for liquidated damages and extension of time claims on printed forms of contract were to be construed contra proferentem.
11 In its pleading, PI alleged that there were terms of the contract that:
(a) the date by which UCP was required to reach practical completion was the later of 9 December 2015 or 195 working days from the date when UCP took possession of the property (being 9 February 2018);
(b) whether the works had reached practical completion was to be assessed by the architect in accordance with the contract, with the architect being required to give written notice to UCP once it decided that practical completion had been reached;
(c) if UCP failed to reach practical completion by the date for practical completion, it was required to pay PI liquidated damages at the rate of $2,000 per calendar day up to the date when practical completion was reached;
(d) the contract price was a lump sum and UCP represented that it allowed for everything reasonably required in accordance with the contract to complete the works;
(e) UCP could submit to the architect one claim for a progress payment in each month on or after the 15th day of each month;
(f) the architect was obliged within 10 business days to assess a claim for a progress payment and issue to UCP and PI a certificate setting out any payment due either to UCP or PI;
(g) in making its assessment, the architect had to take account of each of the matters set out in clause N4(2) of the written contract between the parties, including liquidated damages;
(h) the architect could issue a certificate for payment at any time up until the final certificate is issued;
(i) on receiving a certificate from the architect, the party to be paid must deliver the certificate to the other party for payment and, if the party to be paid is registered for GST, it must at the same time deliver a tax invoice equal in value to the certificate to the other party;
(j) the amount stated as owing in any certificate must be paid within 14 calendar days after delivery of the certificate and the tax invoice;
(k) each party was required to pay interest on any money that it owed the other but failed to pay on time at a rate of 10 per cent per annum;
(l) on 16 March 2016, UCP took possession of the property and, accordingly, the date by which it was required to reach practical completion in accordance with the terms of the contract was 9 February 2017, being 195 working days after this date;
(m) on about 15 July 2017, UCP provided to the architect a claim for a progress payment (progress claim 16);
(n) on 21 July 2017, the works reached practical completion, being 162 calendar days after the date for practical completion on 9 February 2017 and, accordingly, PI became entitled to liquidated damages in the amount of $324,000;
(o) on about 23 August 2017, the architect issued a certificate in accordance with the contract certifying that an amount of $322,493.54 was payable by UCP to PI (progress certificate 16 Rev A).
12 After PI delivered to UCP progress certificate 16 Rev A and a tax invoice in February 2018, UCP failed to pay any amount to PI.
13 The provision in the contract regarding liquidated damages is found at clause M9. Clause M9 reads as follows:
“Liquidated damages may be payable:
1. If the works have not reached practical completion by the date for practical completion as adjusted, the architect must promptly notify the contractor and the owner in writing of the owner’s entitlement to liquidated damages.
2. Up to 20 working days after the date of issue of the notice of practical completion, the owner may notify the architect in writing whether it will enforce its entitlement to liquidated damages against the contractor.
3. The contractor is liable to pay or allow to the owner liquidated damages at the rate shown in item 24 of schedule 1.”
14 UCP contended that PI’s contractual entitlement to liquidated damages was dependent upon establishing the following material facts:
· the works under the contract not reaching practical completion by the date for practical completion as adjusted under the contract.
· the architect notifying the contractor and the owner in writing of the owner’s entitlement to liquidated damages.
· the owner notifying the architect in writing whether it would enforce its entitlement to liquidated damages against the contractor within 20 working days after the date of issue of the notice of practical completion.
15 It was said that it was only once those matters were pleaded and proved that PI could succeed in its claim for liquidated damages. UCP argued, correctly, that the statement of claim did not plead these matters but simply asserted, in effect, that if UCP failed to reach practical completion by the nominated date, it was required to pay PI liquidated damages at a rate of $2,000 per calendar day up until the date when practical completion was achieved.
16 In addition, UCP contended that PI failed to correctly plead the clause governing practical completion under the contract. Clause M1.1 provides as follows:
“The contractor must bring the works to practical completion by the date for practical completion shown in item 22 of schedule 1 as adjusted in accordance with this contract.”
17 Item 22 of schedule 1 provided that the date of practical completion was 9 December 2016 or 195 working days from the date UCP took possession of the property.
18 UCP contended that in construction contracts of the kind in this case, there are often variations to the work to be performed under the contract and/or delays to the building program arising from a variety of matters, not all of which are within the control of the parties. Accordingly, whether the delay is attributable to additional work arising through variations or other causes, it is not unusual for the date of practical completion to be changed to reflect the new circumstances. PI’s pleading, as opposed to the actual terms of the contract, made no reference to the date for practical completion “as adjusted”. It was argued that this was a significant matter because under clause M1, liquidated damages run from the date for practical completion as adjusted, not simply from the date for practical completion. This was said to be especially relevant in circumstances where there were a substantial number of variations approved by the architect.
19 In support of its contentions regarding this part of the case, UCP referred to Jindra v Tech-Rentals Pty Ltd & Anor[1] and Boral Resources (Vic) Pty Ltd & Ors v Construction, Forestry, Mining and Energy Union.[2] In the former case, Warren J (as she then was) was dealing with an application to set aside default judgment which was said to have been irregularly entered. Her Honour found in favour of the applicant. In so doing, Her Honour said (at paragraph 18):
“It is trite to say that a pleading must inform the other party of the claim made against that party and the facts upon which the claim is based and which in law entitle the plaintiff to the relief sought. The amended counterclaim does not meet the requirements of 0.13.02. If a plaintiff has entered judgment upon the basis of a counterclaim that is defective with respect to the very claim for which judgment is sought because a cause of action is not properly pleaded and does not comply with the Rules it follows that such judgment, if entered, is irregular and ought be set aside. In my view the judgment was, therefore, irregularly entered.”
[1][1999] VSC 206.
[2][2014] VSC 429.
20 In the latter case, Derham As J accepted the proposition that where a plaintiff enters judgment upon the basis of a defective pleading which does not properly plead a cause of action in compliance with the Rules, the judgment is irregular and ought be set aside.[3]
[3]Ibid at [40].
21 PI sought to avoid the thrust of UCP’s pleading argument by contending that it placed no reliance upon clause M9 of the agreement. Rather, it said that it relied upon the certificate granted by the architect specifying that overall, UCP was obliged to pay PI about $322,000. It further contended that UCP was conflating the requirements of a proper pleading which satisfied the Rules with a requirement to disclose a cause of action. PI argued that there was enough in the statement of claim to disclose the cause of action relied upon and thereby give sufficient notice to UCP of the case which it had to meet.
22 If it is correct that the plaintiff relied only upon the architect’s certificate and resultant obligation to pay money under the contract, then it is not apparent why PI included in the statement of claim reference to the date of practical completion and the financial consequences which might follow a failure to achieve practical completion by the due date. As noted, PI pleaded the consequent liability in a way which was not consistent with the terms of the contract sued upon.
23 Overall, I consider that notwithstanding the inconsistency, PI’s statement of claim disclosed a cause of action and UCP should have been able to work out the case which it had to meet. The critical elements of the cause of action, namely, a contract, the terms of the contract, breach of the contract, and damage were all included – even if PI’s case might not have been successful in terms of the support which it drew from the documentation relied upon.
Defence on the merits
24 UCP accepted that if PI’s judgment were regularly entered, then it had to address the criteria laid down in cases such as Kostokanellis v Allen.[4] Thus, UCP had to address issues such as:
[4][1974] VR 596. This authority has been followed subsequently in cases such as Lubura v Nezirevic [2013] VSCA 215 at [4], Westpac Banking Corp v Perri [2013] VSC 290, and Hardy v Gadens Lawyers (a firm) [2008] VSC 603.
· the reason for the default;
· the existence of a defence on the merits;
· whether the application to set aside was made promptly after the defendant learned of the judgment; and
· whether PI would suffer any irreparable harm in the event that the judgment was set aside.
25 The reason for the default was UCP’s failure to file the defence within the time specified in the Rules. As noted, UCP informed PI before the due date for filing that it sought an extension of two weeks until 15 June 2018 to file its defence. UCP did not give a detailed explanation for its request for extra time. Rather, it said in correspondence that it thought the reasons were obvious – there was a lot of material to collate over an extended period. Thus, it was going to take the lawyers additional time to complete this work.
26 PI disagreed there was a good reason for the delay and argued that entering judgment in accordance with the Rules could not constitute an abuse of process or a breach of the Civil Procedure Act 2010 (Vic) (“the CPA”).
27 I note that the defence exhibited to the Soliman affidavit dated 14 June 2018, is a comprehensive document going well beyond a series of bare denials. It is a detailed pleading and includes several annexures which list specific extension of time claims and variations allowed or disallowed by the architect. It is obvious that in order to be so specific, UCP must have spent more than a little effort on the exercise. To that extent, I do not consider that the request for more time was totally unjustified. Nor did it seem to be time wasted given the detailed defence and counterclaim which UCP produced. The explanation for not filing on time was cogent.
28 In its material, UCP raised the following issues relevant to its defence and counterclaim:
(a) the liquidated damages clause was not a genuine pre-estimate of PI’s loss and is therefore void;
(b) UCP took possession of the property on 8 April 2016, not 16 March 2016, and therefore the date for practical completion was later than the date used by the architect;
(c) PI approved numerous variations to the contract which had the effect of extending the date for practical completion;
(d) PI breached its obligations to ensure that the architect acted fairly and impartially when acting under the contract having regard to the interests of both PI and UCP;
(e) progress certificate 16 Rev A was void and of no effect because it was issued in breach of the terms of the contract in that:
(i) the architect failed to follow the mandatory procedure set down in clause N4(2) of the contract when assessing the claim for payment;
(ii) PI breached clause A6.4 by compromising the architect’s independence in acting in assessor, valuer, or certifier.
(f) PI owed UCP $277,543.71 as the balance owing under the contract;
(g) pursuant to clause J5 of the contract, variations approved by the architect had the effect of adjusting the date for practical completion; and
(h) the adjustment to the date for practical completion constituted a claim for adjustment of time costs under clause H5.
29 In addition, UCP relied upon the circumstances in which PI entered judgment to contend that its conduct contravened the overarching purpose set out in section 7 of the CPA and was inconsistent with the paramount duty to further the administration of justice (as set out in section 16 of the CPA) and with sections 19 and 20 of the CPA. Especially was this so in circumstances where, as evidenced by PI’s reference to it in the statement of claim, PI knew that its claim was disputed and UCP had a counterclaim for about $277,500.
30 PI took issue with UCP’s claim and said that none of the three broad defences put forward could succeed. PI characterised the defences as follows:
(a) the rate of liquidated damages was a penalty;
(b) the interim certificate issued by the architect was wrongly calculated; and
(c) there was a set-off.
31 As to the penalty argument, I agree that UCP adduced no specific evidence to support the allegation that the liquidated damages clause constituted a penalty. The comparison with PI on this point was stark because Mr Honeyborne, on behalf of PI, deposed to factual matters which supported the contention that the figure of $2,000 per day was a genuine pre-estimate of PI’s loss.
32 With regard to the certificate issued by the architect, PI contended that it was contrary to the agreement made between the parties for UCP to attempt to obtain a merits review of the architect’s decision in relation to progress certificate 16 Rev A. It referred to cases such as Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd[5] and WMC Resources Ltd v Leighton Contractors Pty Ltd.[6] Neither of these cases involve the identical contract to that under review in this case. Ultimately, it may be that PI is correct in its claim that both parties are bound by the terms of the agreement they made here. Hence, on this argument, even if the architect made an error or miscalculated, provided he acted in accordance with the terms of the agreement, then the parties are bound by the resultant certificate.
[5](2013) 41 VR 636 at [15]
[6](1999) 20 WAR 489 at [22].
33 The final matter raised was set-off. Here, PI seemed to argue that notwithstanding the Rules, UCP could not raise a set-off due to the terms of the contract entered with PI. PI submitted that, when read in context and as a whole, the effect of the agreement was that:
· the amount in an architect’s certificate had to be paid because that was the only mechanism by which payment under the contract was allowed; and
· to the extent that the contract had a dispute resolution mechanism, UCP had not sought to invoke it.
34 The argument about the architect’s certificate relies largely upon the agreement and its interpretation. Contractual documents are not uncommonly subject to differing views. UCP had little opportunity to analyse the submission by PI when it was raised in court. Evidence might also be relevant to the issue of the extent to which a certificate’s validity can be affected by a failure to follow the procedure set out in the contract.
35 The question of set-off is also subject to argument about the construction of the contract.
36 Other matters raised by UCP involve factual and/or legal disputes – for example, variations and their consequential effect upon extensions of time; liquidated damages.
37 In my opinion, the defendant has done enough to raise a defence on the merits or an arguable defence which is not purely fanciful. This is not to say that UCP will necessarily succeed. Rather, it may fail and PI might ultimately be shown to be correct in its contentions. However, the circumstances are such that the case should not be decided without an adjudication on the merits. Due to the issues raised, UCP has an arguable defence. To the extent that section 63 of the CPA might be relevant, I do not consider that it can be said with sufficient certainty that there is no real prospect of success.
38 Plainly, UCP has acted promptly to set aside the judgment. It has not sat on its hands. Also, there is no irreparable prejudice to PI if the judgment is set aside.
39 In exercising my discretion, I have also taken into account the background circumstances and context in which PI entered judgment. I accept that PI entered judgment five days after UCP solicitors were told that PI was entitled to enter judgment. Notwithstanding this and PI’s strict statutory entitlement under the Rules to enter judgment, I nonetheless have reservations about PI’s conduct. The Rules are intended to regulate the conduct of litigation and there is no suggestion that PI breached any Rules. It was UCP that sought, but did not obtain, an indulgence from PI. However, context is important. In a situation where:
· the parties had been in a number of disputes in both the Supreme Court and this court;
· earlier this year PI had been unsuccessful in two matters in the Supreme Court; and
· PI was aware that UCP intended to defend the case and raise a substantial counterclaim
I query whether PI’s failure to wait until 15 June 2018 before entering judgment was appropriate conduct under the CPA. From one perspective, PI’s actions served little purpose other than to assert itself. This might have seemed a good idea given PI’s losses in the Supreme Court and the other judgment in favour of UCP. However, the course of action adopted has caused both parties to spend more time and money on an interlocutory dispute without materially advancing the litigation. In other words, the course of action adopted by PI did not seem to me to promote the overarching purpose specified in the CPA.
40 Accordingly, I propose to set aside the default judgment and order that the defendant pay the costs of the application. I direct that the parties confer and produce orders preparing the proceeding for trial.
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