QBE Insurance (Australia) Ltd v Taylor
[2011] WADC 197
•11 NOVEMBER 2011
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: QBE INSURANCE (AUSTRALIA) LTD -v- TAYLOR [2011] WADC 197
CORAM: PRINCIPAL REGISTRAR GETHING
HEARD: 2 NOVEMBER 2011
DELIVERED : 11 NOVEMBER 2011
FILE NO/S: CIV 257 of 2011
BETWEEN: QBE INSURANCE (AUSTRALIA) LTD
Plaintiff
AND
ANNA EUGENIE TAYLOR
First DefendantJASON ELLIOTT TAYLOR
Second DefendantSTOCKLAND SOUTH BEACH PTY LTD
Third Defendant
Catchwords:
Summary judgment - Defendants application
Legislation:
Rules of the Supreme Court 1971 (WA) O 16
Result:
Application dismissed
Representation:
Counsel:
Plaintiff: Mr A P Hershowitz
First Defendant : Mr A J N Aristei
Second Defendant : Mr A J N Aristei
Third Defendant : Mr D C McKimmie
Solicitors:
Plaintiff: Polczynski Lawyers
First Defendant : Western Legal
Second Defendant : Western Legal
Third Defendant : Norton Rose Australia
Case(s) referred to in judgment(s):
Commonwealth Bank of Australia v Hanley [1998] NSWSC 1032
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Morgan v Pallister [2004] WASC 188
Reliance Developments (NSW) Pty Ltd v Lumley General Insurance Ltd [2008] NSWSC 172
Shurmur v Young (1889) 5 TLR 155
SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138
WMC Resources Ltd v Roche Mining Pty Ltd [2004] WASC 76
PRINCIPAL REGISTRAR GETHING: By application dated 16 February 2011 the first and second defendants, Jason and Anna Taylor ('the Taylors'), seek summary judgment against the plaintiff, QBE Insurance (Australia) Limited ('QBE').
Background
The background facts to the application are that, by contract dated 23 August 2007, the Taylors entered into a contract ('Contract') with the third defendant, Stockland South Beach Pty Ltd ('Stockland'), to purchase Apartment 4B in the Islands Apartments in North Coogee ('the Apartment') from Stockland.
The Taylors paid the deposit for the Contract, in the amount of $172,100, by way of a deposit bond ('Deposit Bond') issued by QBE in favour of Stockland. The Deposit Bond was issued on 20 September 2007. There was a parallel contract between QBE and the Taylors containing an indemnity pursuant to which the Taylors would indemnify QBE for moneys paid out pursuant to the Deposit Bond.
Pursuant to the Contract, settlement was due for 2 June 2010. The Taylors did not settle on the due date, and have not since settled.
Following the failure of the Taylors to complete settlement, Stockland made a demand on the Deposit Bond to QBE. QBE paid Stockland the amount of the Deposit Bond. QBE then made a demand on the Taylors pursuant to the indemnity. The Taylors did not make a payment in response to the demand.
In this action, CIV 257 of 2011, QBE sued the Taylors on the indemnity.
In a related action (CIV 339 of 2011) Stockland sued the Taylors for breach of the contract to purchase the Apartment.
In support of its application for summary judgment, the Taylors filed affidavits of:
(a)Kristin Ho, an articled clerk employed by their solicitors, sworn 16 February 2011, annexing a draft affidavit from Mr Taylor; and
(b)Jason Elliot Taylor, sworn 18 February 2011.
QBE filed two affidavits in opposition to the application:
(a)David Brown, QBE's claims manager credit and surety, sworn 30 March 2011; and
(b)Colin Wagstaff, the manager of QBE's surety division based in Western Australia, sworn 29 March 2011.
The summary judgment application came on for mention on 10 March 2011 directions were made for the filing of affidavits.
By application filed 29 April 2011, QBE sought to file an amended writ adding Stockland as a party. When this came on for hearing on 16 May 2011, the Deputy Registrar adjourned it for hearing at the same time as the Taylors' summary judgment application.
Both applications came on for hearing before me on 30 June 2011. The summary judgment application was partly argued. In the course of argument, I expressed a view that it would be very difficult for me to rule on the summary judgment application without hearing from Stockland. This is because, in order to rule on the application, I had to rule on whether Stockland had made a valid claim on the Deposit Bond. I ended up making orders allowing QBE to join Stockland as a third defendant and adjourning the summary judgment application sine die.
The action then came before me for directions on 27 July 2011 and I made orders for the filing of defences. At the next directions hearing on 31 August 2011, I made further orders in relation to pleadings and orders giving Stockland the opportunity to file affidavits in opposition to the summary judgment application. Stockland filed an affidavit of Kathryn McDougall, sworn 12 October 2011, in opposition to the Taylors application for summary judgment.
At the directions hearing on 12 October 2011 I listed the summary judgment application for hearing on 2 November 2011.
Relevant law
The power of the court to grant summary judgment in favour of a defendant arises where the court is satisfied 'that the action is frivolous or vexatious, that the defendant has a good defence on the merits, or that the action should be disposed of summarily or without pleadings': Rules of the Supreme Court 1971 O 16 r 1. The ground relied on by the Taylors is the second limb, that they have a good defence on the merits.
The application must be brought 'within 21 days after appearance or at any later time by leave of the Court': Rules of the Supreme Court O 16 r 1. The Taylors complied with this requirement.
In SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [2011] WASCA 138 [20], the Court of Appeal (Pullin, Newnes and Murphy JJA) in a joint judgment approved the following formulation of the general principles for an application pursuant to Rules of the Supreme Court O 16:
The power to order summary judgment is one that should be exercised with great care: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial, that summary judgment ought properly be granted: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46]. And whilst the court may determine any difficult question of law on such an application, it will usually be appropriate to leave the determination of such questions for trial: see Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 - 515; Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1 [36].
The burden of persuasion is on the applicant, the Taylor's in this application: Morgan v Pallister [2004] WASC 188 [4]. On an application pursuant to Rules of the Supreme Court O 16, the 'applicant for summary judgment bears a heavy onus': WMC Resources Ltd v Roche Mining Pty Ltd [2004] WASC 76 [35].
In this case, key issue is the construction of the Deposit Bond. In a case involving the construction of a contract, summary judgment ought not be granted where there is a fairly arguable question of construction: Shurmur v Young (1889) 5 TLR 155; Commonwealth Bank of Australia v Hanley [1998] NSWSC 1032. Placing this proposition together with those in the preceding paragraph, the Taylors must persuade me that the construction of the Deposit Bond advanced by QBE and Stockland is not fairly arguable.
Terms of the Deposit Bond
There are no real factual disputes between the parties relevant to the determination of this application. Rather, the determination of this application turns on the construction of the terms of the Deposit Bond. For that reason, it is appropriate that I set out the terms of the Deposit Bond in full.
DEPOSIT BOND
Bond No. B17110907
At the request of JASON ELLIOTT TAYLOR and ANNA EUGENIE TAYLOR (Purchaser/s), and in consideration of STOCKLAND SOUTH BEACH PTY LIMITED – ACN 108 905 031 (Vendor) accepting this undertaking in respect of the Contract of Sale between the Vendor(s) and Purchaser(s) for the property at APARTMENT 4B 'ISLANDS' PROPOSED LOT 32 CORNER OCEAN DRIVE AND ISLANDS STREET, NORTH COOGEE WA 6166, for full purchase price of $1,721,000.00 (One Million Seven Hundred and Twenty One Thousand Dollars Only) (Contract for Sale).
QBE Insurance (Australia) Limited A.B.N. 78 003 191 035 (Financial Institution) of 82 Pitt Street, NSW, 2000, undertakes to the Vendor to pay on demand any sum or sums which may be demanded by the Vendor to a maximum aggregate sum of $172,100.00 (One Hundred and Seventy Two Thousand Dollars Only) (Bond Amount).
The Financial Institution will make payment, should it receive from the Vendor:
· a copy of a notice of termination or rescission of the Contract of Sale served by the Vendor on the Purchases; and
· a statement in writing by the Vendor stating that the Vendor is entitled to the deposit under the Contract of Sale (Deposit) and that the Deposit has not been paid to the Vendor by the Purchaser in accordance with the terms of the Contract of Sale; and
· a written demand for the outstanding amount; and
· the original of this undertaking.
It is agreed that the Financial Institution will make payment or payments to the Vendor under and in accordance with this undertaking forthwith without reference to the Purchaser and notwithstanding any notice given by the Purchaser not to make any such payment or payments.
This undertaking is to continue until:
· the contract of sale has been completed; or
· 4pm, (Sydney time) on the 31st Day of July, 2010; or
· the original of this undertaking is returned to the Financial Institution; or
· the Vendor notifies the Financial Institution in writing that this undertaking is not longer required; or
· the Financial Institution has paid to the Vendor the whole of the bond Amount or such part of the Bond Amount as the Vendor may require,
whichever first occurs at which time this undertaking expires.
Signed on behalf of
QBE Insurance (Australia) Limited by its authorised agent Deposit Access Pty Ltd.
Dated Sydney this 20th day of September, 2007
Stockland's actions to invoke the Deposit Bond
Stockland sought to invoke the Deposit Bond by letter dated 26 July 2010 to QBE, a copy of which is annexed to Mr Brown's affidavit. The letter was sent to QBE by facsimile and registered post.
There is no dispute between the parties that in this letter Stockland complied with the first three bullet points of the third paragraph of the Deposit Bond. Specifically, in the facsimile Stockland, as vendor:
(a)gave QBE a copy of a notice of termination or rescission of the Contract of Sale served by it on the Taylors;
(b)made a statement in writing that it was entitled to the deposit under the Contract and that the deposit has not been paid by the Taylors to it in accordance with the terms of the Contract; and
(c)made a written demand for the outstanding amount due under the deposit, being $172,100.
However, in the letter, Stockland only enclosed a copy of the Deposit Bond, and not the original of the Deposit Bond, as set out in the fourth bullet point of the third paragraph of the Deposit Bond.
Construction of the Deposit Bond – Taylors
The construction of the Deposit Bond advanced by the Taylors is that it continues until the events set out in one of the five bullet points in the fifth paragraph occurs. In the present case, it is not issue that the first, third and fourth bullet points did not occur by 31 July 2010, namely:
(a)'the contract of sale has been completed'; or
(b)'the original of this undertaking is returned to the Financial Institution'; or
(c)'the Vendor notifies the Financial Institution in writing that this undertaking is not longer required'.
The Taylors further assert that the fifth bullet point was not satisfied by 31 July 2010, namely: 'the Financial Institution has paid to the Vendor the whole of the Bond Amount or such part of the Bond Amount as the Vendor may require'. It is common ground between the parties that QBE did not pay Stockland until 9 August 2010.
The Taylors then submit that it follows that the first of the five events in the final paragraph to occur was the second bullet point: '4pm, (Sydney time) on the 31st Day of July, 2010'. That being so, the Deposit Bond had expired before QBE paid out any money to Stockland. Any money paid by QBE to Stockland was thus not paid out pursuant to the Deposit Bond. It then follows (on the Taylors' argument) that there is no basis for a claim against the Taylors on the parallel indemnity, and that they have a good defence on the merits such as to warrant the grant of summary judgment.
Construction of the Deposit Bond – QBE and Stockland
The construction put forward by QBE and Stockland in the hearing before me was that the second paragraph of the Deposit Bond is the operative paragraph. The critical event is that the demand to pay is made before the expiration of the undertaking, in this case being 31 July 2010. Here, the demand was made on 27 July 2010.
In its amended statement of claim, QBE pleads that the letter of 27 July 2010 contains 'an agreement by the third defendant to make the original Deposit Bond available to the plaintiff in exchange for payment of $172,100' (par 10(d)).
In its written submissions, Stockland asserted that the true effect of Stockland's demand for payment under the Deposit Bond was that Stockland was ready, willing and able to provide the original Deposit Bond in exchange for payment of the amount secured by the Deposit Bond (par 23, submissions 10 October 2011). It asserts that the true effect of the expiration date in the Deposit Bond was that if no demand had been made prior to its expiry, then at that stage, QBE's ongoing obligation to make payment under the Deposit Bond would come to an end.
Paragraph 3 of the Deposit Bond then sets out the mechanics of payment. The four dot points of that paragraph need to be complied with as a pre‑condition to payment. However, aside from the third dot point ('a written demand for the outstanding amount'), there is no time by which the mechanics for payment need to be satisfied.
On this interpretation, it was sufficient that the demand was made before 31 July 2010. There does not seem to be any contest that the four dot points of the third paragraph were complied with prior to QBE paying Stockland on 9 August 2010.
Determination
The facts in the present case are similar to those considered by the Court in Reliance Developments (NSW) Pty Ltd v Lumley General Insurance Ltd [2008] NSWSC 172. In that case the developer who had the benefit of the deposit bond sued the issuer of the bond (Lumley). The issuer refused to pay out on the bond as there had not been strict compliance with the terms of the bond. Bryson AJ found for the defendant issuer.
At one level, the decision supports the interpretation advanced by the Taylors. Bryson AJ viewed the nature of the deposit bond as a financial instrument as requiring strict formal compliance with its terms. At [41] ‑ [43], his Honour stated:
In my opinion the words of the Bond intractably require strict formal compliance. Formality is everything; if the formalities are met, Lumley has to pay. Lumley is not to refer to the purchaser and Lumley has to ignore any notice given by the purchaser; such as a notice contending that delivery of notice of termination was unjustified, or contending that the contract does not entitle the vendor to recover the deposit, or contending that the purchaser has actually paid the deposit: deaf ears.
Rigid formality and unquestioning payment on compliance are the heart and soul of the Bond and central to its commercial function. Performance bonds, guarantee bonds and other documents with similar characteristics and commercial function are encountered from time to time in case law, and they are enforced strictly. This is one of them.
The strict and mechanical nature of the working of the Bond, which in my opinion its terms require, fulfils the purposes for which the Bond and documents of similar character referred to in Wood Hall [(1979) 141 CLR 443] exist; if the stated conditions exist, the guarantor must pay the money, as the Bond takes the place of money which, under different arrangements, the recipient would already have under control. The merits of the relationship between vendor and purchaser and the substantial justice of the whole controversy are not relevant; they are beside the point of the guarantor’s obligation which exists if the stated conditions are fulfilled, and does not exist if they are not fulfilled. Strictness with respect to the conditions is a long established aspect of the approach of the court to guarantees. See Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 at 92F (P.C.).
On the other hand, QBE submitted that the Deposit Bond in the present case was different in three respects to that considered in Reliance. Unlike the bond in that case, the Deposit Bond does not:
(a)prescribe the form that the demand must take, other than that is must be in writing;
(b)expressly require that the demand is accompanied by the other documents referred to the Deposit Bond; and
(c)expressly require receipt by the plaintiff of the original of the Deposit Bond before expiry of the Deposit Bond.
These differences remove barriers to a judge at trial adopting the interpretation put forward by QBE and Stockland.
On balance then, the decision in Reliance, whilst instructive, is not determinative.
The issue of whether it is appropriate to grant summary judgment where there is a dispute as to the construction of a contract was considered by the Court of Appeal in SMEC. In that case, the central issue was whether the losses claimed by the plaintiff against the defendant were 'consequential losses' for the purposes of cl 6 in the contact between them, limiting the damages payable by the defendant in the event of a breach of contract. The learned master dismissed the defendant's application for summary judgement. This decision was upheld on appeal, in part for the reason that the Court of Appeal determining that the master was correct in concluding that the case was not an appropriate one for summary judgment ([19] ‑ [25]).
The Court of Appeal referred to the relevant principles of construction in the following terms ([22]).
The relevant principles of construction are again well-known. The common intention of the parties to a contract is to be ascertained by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contract is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179. This normally requires a consideration of not only the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction, including the market in which the parties were operating: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 [22]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 - 462; Toll (FGCT) v Alphapharm (179)
In the course of the appeal hearing, Counsel for the plaintiff (respondent) advised the Court that the plaintiff intended to lead evidence of the surrounding circumstances which would lead of a construction of cl 6 contrary to that contended by the defendant. This would be set out in the reply. Their honours concluded ([25]):
[W]e do not consider this an appropriate case to determine the meaning of cl 6 in what Murphy J described in SAS Global Forrestdale Pty Ltd v Towton Investments Pty Ltd [2010] WASC 167 [67] as an 'evidential vacuum'. What is meant by the term, 'consequential loss', is … a vexed question …. What it means in the consultancy agreement is a matter properly left to trial.
In its written submissions, Stockland asserts that is permissible for the Court to resort to background materials to discern the meaning intended by parties to a contact, citing Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407. It then submits that 'the accepted nature and purpose of performance guarantees, including a deposit bond, is relevant to the proper construction of the terms of the Deposit Bond, and the circumstances in which QBE's obligation to make payment arises under that document' (par 19). The submissions then go on to refer to case law on the nature of performance guarantees.
The fact that, construing a contract, 'normally requires a consideration of not only the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction, including the market in which the parties were operating' (SMEC [22]), is a significant factor against the grant of summary judgment. Another significant factor is that the issuer of the Deposit Bond, QBE, regarded itself as bound to pay out on the Deposit Bond in accordance with its usual commercial practices. This may prove to be an act which is contrary to its commercial interests should it not be indemnified by the Taylors. This is in contrast to the decision in Reliance in which the issuer did not regard itself as so bound.
The onus is on the Taylors to persuade me that the interpretation put forward by QBE and Stockland is not fairly arguable. Exercising the 'great care' that I am required to exercise, the Taylors have not persuaded me that the construction of the Deposit Bond put forward by QBE and Stockland is not fairly arguable. This is not a clear case where there is a high degree of certainty about the ultimate outcome of the action if it went to trial. It is more akin to the situation in SMEC in which it is not appropriate to determine the question of construction in an 'evidential vacuum': [25].
In its written submissions, QBE raised a further argument that if the Court were to find that QBE was not obliged to make a payment in response to the call made on the Deposit Bond, then the indemnity was nonetheless still wide enough to found the present action. Given my conclusion on the construction issue, it is not necessary for me to consider this submission.
The application is dismissed. I will hear from counsel on the question of costs and consequential orders.
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