Russell Consolidated Pty Ltd v Russell Noble Constructions Pty Ltd
[2021] WASC 155
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: RUSSELL CONSOLIDATED PTY LTD -v- RUSSELL NOBLE CONSTRUCTIONS PTY LTD [2021] WASC 155
CORAM: CURTHOYS J
HEARD: 30 OCTOBER 2020
DELIVERED : 31 MAY 2021
FILE NO/S: CIV 2979 of 2019
BETWEEN: RUSSELL CONSOLIDATED PTY LTD
Applicant
AND
RUSSELL NOBLE CONSTRUCTIONS PTY LTD
First Respondent
TRUPALM PTY LTD
Second Respondent
REGISTRAR OF TITLES
Third Respondent
Catchwords:
Application by interpleader - Whether debt created by adjudication determination is secured by charging clause of a contract - Nature of adjudication determination under Construction Contracts Act 2004 (WA) - Whether charging clause encompasses debt created by adjudication determination - Where similar guarantee clause has been interpreted in separate proceedings - Abuse of process - Construction of charging clause
Legislation:
Construction Contracts Act 2004 (WA) pt 3, s 40
Result:
CIV 2979 of 2019
Caveats lapse with immediate effect
CIVO 208 of 2018
Application granted
Category: B
Representation:
Counsel:
| Applicant | : | C S Williams |
| First Respondent | : | D J Pratt |
| Second Respondent | : | No Appearance |
| Third Respondent | : | No Appearance |
Solicitors:
| Applicant | : | Solomon Brothers |
| First Respondent | : | Jackson McDonald |
| Second Respondent | : | In Person |
| Third Respondent | : | In Person |
Case(s) referred to in decision(s):
Batistatos v Roads and Traffic Authority of New South Wales [2007] HCA 27; (2006) 226 CLR 256
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242
Cleary v Jeans [2006] NSWCA 9
Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91
Donnellan v The Public Trustee [2007] WASC 213
Duro Felguera Australia Pty Ltd v Samsung C & T Corporation [2016] WASC 119
Francis Travel Marketing Pty Limited v Virgin Atlantic Airways Limited (1996) 39 NSWLR 160
Goldsmith v Sperrings Ltd [1977] 1 WLR 478; [1977] 2 All ER 566
Hunter v Chief Constable of the West Midlands Police [1982] AC 529; [1981] 3 All ER 727
IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466
Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 130; [1941] 1 All ER 33
Mitsui Construction Co Ltd v A-G (Hong Kong) (1986) 33 BLR 1; 10 Con LR 1
Moti v The Queen (2011) 245 CLR 456
Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217
Reichel v Magrath (1889) 14 App Cas 665
Rogers v The Queen [1994] HCA 42; (1994) 181 CLR 251
Russell Noble Constructions Pty Ltd v Sewell [2019] WADC 148
Salini-Impreglio SPA v Francis [2020] WASC 72
Sandtara Pty Ltd v Abigroup (1996) 42 NSWLR 491
Secretary of State for Trade and Industry v Bairstow [2004] Ch 1; [2004] 4 All ER 325
Sheraz v Vegas Enterprises [2015] WASCA 4
Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408
Transfield Pty Ltd v Feiersinger [1988] NSWCA 160
Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378
Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509
CURTHOYS J:
Introduction
Russell Noble Constructions Pty Ltd (Russell Noble) seeks orders to:
(a)set aside the caveats of Russell Consolidated Pty Ltd (Russell Consolidated); and
(b)for the Sheriff's Office of the Department of Justice (Sheriff) to seize and sell two properties owned by Trupalm Pty Ltd (Trupalm) which are the subject of property (seizure and sale) orders (PSSOs).
Russell Noble contends that it should receive the proceeds from the sales in priority to Russell Consolidated because of Russell Noble's prior equitable charge arising from a contract between Russell Noble and Trupalm.
Russell Noble's case is that its equitable charge under the contract encompasses a debt created by an adjudication determination made pursuant to the Construction Contracts Act 2004 (WA) (CCA) in favour of Russell Noble and subsequently registered as a judgment by the District Court.
Russell Consolidated also has an equitable charge over the two properties that arises under a loan agreement with Trupalm and disputes Russell Noble's charge on the basis that the adjudication determination does not fall within the scope of Russell Noble's charge under its contract with Trupalm.
Background
Russell Noble is a registered builder which undertakes construction works throughout Western Australia.
Trupalm is in the business of property development. Russell Consolidated is a 50% shareholder of Trupalm.[1]
[1] Affidavit of Matthew John Lang sworn 10 September 2020, Annexures MJL-3 and Annexure MJL-11 (Lang Affidavit).
On 4 October 2013, Russell Noble entered into a 'Medium Works Commercial Contract' with Trupalm for the construction of six residential units at 24 Paton Road, South Hedland, Western Australia (the Contract).[2]
[2] Lang Affidavit [5] and Annexure MJL-1.
Russell Noble completed construction of the six units in or about July 2014.[3]
[3] Lang Affidavit [6].
Trupalm is the registered proprietor of units 1 ‑ 4 of the six constructed units. The relevant units for the purpose of these proceedings are units 1 and 2, otherwise described as:
(a)Lot 1 on Strata Plan 67318, being the whole of the land in Volume 2865 folio 593 (Unit 1); and
(b)Lot 2 on Strata Plan 67318, being the whole of the land in Volume 2865 folio 594 (Unit 2).
Under cl 3.6 of the Contract, Trupalm charged its interest in the units with due payment to Russell Noble of all moneys that may become payable to Russell Noble arising out of the subject matter of the Contract.
On or about 8 March 2014, Russell Consolidated and Trupalm entered into a loan agreement (the Loan Agreement).[4] Clause 3 of the Loan Agreement grants Russell Consolidated a 'first mortgage' over Units 1 and 2 as security for its loan to Trupalm.[5] Russell Consolidated submits that cl 3 of the Loan Agreement created an equitable mortgage or equitable charge over the units in its favour.[6] The amount under the Loan Agreement remains unpaid.[7]
[4] Affidavit of John Griffin sworn 15 November 2019 [4] and Annexure JDG-1 (Griffin Affidavit).
[5] Griffin Affidavit, Annexure JDG-1.
[6] Claimant's Submissions dated 19 October 2020 [50].
[7] Affidavit of Helen Marie Russell affirmed 16 October 2020 [11].
On 17 August 2015, Russell Noble registered the following caveats over Unit 1 and Unit 2 to protect its charge:
(a)caveat N093444 in respect of Unit 1; and
(b)caveat N093445 in respect of Unit 2.[8]
[8] Lang Affidavit [9] ‑ [11], Annexures MJL-4 and MJL-5.
On or about 2 July 2018, Russell Noble submitted a payment claim for works the subject of the Contract in accordance with the requirements of the CCA. Trupalm did not pay and a payment dispute arose.[9] The payment dispute was adjudicated and a determination made against Trupalm in favour of Russell Noble.[10]
[9] See CCA s 6.
[10] Lang Affidavit [13].
Upon application by Russell Noble pursuant to s 43 of the CCA, the District Court awarded judgment against Trupalm in favour of Russell Noble in the amount of $207,615.94 on or about 29 November 2018. Trupalm has not yet paid the amount awarded pursuant to the determination to Russell Noble.[11]
[11] Lang Affidavit [14] ‑ [15] and Annexure MJL-8.
On 23 July 2019, Russell Noble applied to the District Court for two PSSOs in relation to Units 1 and 2.[12]
[12] Lang Affidavit [20]. The District Court had previously issued PSSO 275/2019 in respect of Unit 4 and PSSO 303/2019 in respect of Unit 3. However, by 17 December 2019, it became apparent that there was no saleable interest in Units 3 and 4: [16], [19], [28].
On 5 August 2019, Russell Consolidated registered the following caveats:
(a) caveat O207793 in respect of Unit 1;
(b) caveat O207792 in respect of Unit 2.[13]
[13] Lang Affidavit [22], Annexures MJL-4 and MJL-5.
On 12 August 2019, the Sherriff provided Russell Noble with certified copies of the following PSSOs:
(a) PSSO 361/2019 in respect of Unit 1; and
(b) PSSO 362/2019 in respect of Unit 2 (the PSSOs).[14]
[14] Lang Affidavit [25] and Annexure MJL-13.
On 11 September 2019, Russell Noble lodged the PSSOs on the Certificates of Title.[15]
[15] Lang Affidavit [27], Annexures MJL-4 and MJL-5.
Caveat action
On 23 October 2019, Russell Noble lodged lapsing notice applications pursuant to s 138B(2) of the Transfer of Land Act 1893 (WA) in an attempt to clear the titles of Units 1 and 2 for sale by removing Russell Consolidated's caveats.
On 15 November 2019, Russell Consolidated commenced an action in the Supreme Court for an order extending the operation of its caveats.
By consent of the parties, I made orders extending the operation of the caveats until further order and adjourning the proceedings sine die.
These proceedings
These proceedings arose as a result of a dispute between the parties as to their respective interests in Units 1 and 2 pursuant to the Civil Judgments Enforcement Act 2004 (WA) (CJEA).
Upon the request of Russell Noble, the Sheriff agreed to apply for relief by way of interpleader.[16]
[16] Lang Affidavit [32] and Annexure MJL-20.
On 3 August 2020, the District Court ordered that the operation of the PSSOs, which were due to expire on 6 August 2020, have their operation extended until 6 August 2021.[17]
[17] Lang Affidavit [33] and Annexure MJL-20.
On 6 August 2020, the Sheriff commenced interpleader proceedings in the District Court.[18]
[18] Lang Affidavit [35] and Annexure MJL-21.
On 28 August 2020, I ordered that the interpleader proceedings be remitted to the Supreme Court and case managed with the caveat action.
On 2 September 2020, Russell Noble re-registered the PSSOs on the Certificates of Title in order to commence a new six month sale period.[19]
[19] Lang Affidavit [36].
The issues
The following matters were not disputed by the parties:[20]
(a)the existence of their respective equitable interests over the units;
(b)the priority of Russell Noble's charge over Russell Consolidated's charge as being first in time; and
(c)the broad powers of the Court on interpleader proceedings, which include making orders for the sale of the units notwithstanding the existence of Russell Consolidated's charge and caveats.
[20] ts 12 -13 (30/10/2020); Judgment Creditor's Reply Submissions dated 23 October 2020 [2] - [3]; Claimant's Submissions [5].
The sole issue in dispute remains whether the amount of the adjudication determination in Russell Noble's favour is secured by the charge given by Trupalm under the Contract.[21]
[21] ts 13 (30/10/2020).
To determine this issue, it is necessary to consider the following matters:
(a)the nature of an adjudication determination under the CCA;
(b)whether the charge under cl 3.6 of the Contract encompasses the debt created by the determination under the CCA and its subsequent registration as a judgment of the District Court.
Nature of an adjudication determination under the CCA
Russell Noble submits that the adjudication determination under the CCA gives rise to a debt payable on account of the amounts due under the Contract and not independent of it.[22] It emphasises that the purpose and object of the CCA is to keep money flowing down the contractual chain by ensuring that progress payments are not held up by principals asserting that they have a defence warranting refusal to pay.[23] Section 40 of the CCA provides that where an adjudicator determines that a principal is liable to pay the contractor an amount in respect of a payment dispute, the payment is to be taken to be an advance towards the total amount payable under the contract. Russell Noble submits that this provision ensures that a payment is part of the total contractual sum and is not a separate payment in addition to contractual rights.[24]
[22] Judgment Creditor's Reply Submissions [9] - [10].
[23] Judgment Creditor's Reply Submissions [8].
[24] Judgment Creditor's Reply Submissions [9].
Russell Consolidated disputes that an adjudication determination under the CCA causes any money to become owing under a construction contract because it gives rise to a specific statutory debt independent of contract.[25] It submits that the determination itself creates the debt.[26] Counsel for Russell Consolidated, Mr Williams, submitted that contrary to Russell Noble's characterisation, s 40 of the CCA has a limited effect because the provision only relates to progress claims as opposed to final claims and is reflective of the general law regarding the characterisation of progress claim provisions in building contracts.[27] Mr Williams also submitted that s 45 of the CCA gives an adjudication determination an interim character.[28]
The CCA
[25] Claimant's Submissions [19].
[26] ts 22 (30/10/2020).
[27] ts 20 (30/10/2020).
[28] ts 21 (30/10/2020).
The material provisions concerning the adjudication of disputes were recently summarised by Archer J in Salini-Impreglio SPA v Francis.[29] Her Honour made the following general observations about the adjudication of payment disputes under the CCA:[30]
[29] Salini-Impreglio SPA v Francis [2020] WASC 72 [42] - [76].
[30] Salini-Impreglio SPA [42] - [46].
Part 3 of the Act provides for the adjudication of payment disputes arising under construction contracts.
The object of an adjudication process is to determine payment disputes fairly and as quickly, informally and inexpensively as possible.[31]
An adjudicator's determination does not finally determine the rights of the parties. A party is not prevented from instituting proceedings before an arbitrator or other person or a court or other body in relation to a dispute arising under the contract, including a dispute that has, or is being, adjudicated under pt 3.[32]
In Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd,[33] Pullin JA (Newnes and Murphy JJA agreeing) said (citations omitted):
The broad purpose of the Act, insofar as it relates to payment disputes, is to ensure that, in construction contracts, progress claims are paid on time and that principals obliged to pay do not act as their own judge and jury and hold up payment on their own assertion that they have a defence warranting refusal to pay … It is a 'pay now, argue later' system, with the primary aim of keeping the money flowing by enforcing timely payment … If a payment dispute arises, then the Act provides for a system of rapid and summary adjudication which is conducted without any oral hearing. If the adjudicator, having received written submissions, makes a determination that the payment has to be made, then that determination gives rise to a debt 'presently due' and payable by the principal. (emphasis added)
In Duro Felguera Australia Pty Ltd v Samsung C & T Corporation,[34] Buss P and Murphy JA said:
[I]t is an Act, according to the long title, 'to provide a means for adjudicating payment disputes arising under construction contracts'. In relation to the adjudication of 'payment disputes' the Act is plainly beneficial legislation. Adjudicators may, but need not, be legally qualified and the prospect of jurisdictional error occurring at times is perhaps unavoidable. In this context, and given the relatively short time frames under which the adjudicator must work, and the 'primary aim of keeping the money flowing down the contractual chain',[35] the Parliamentary intention to be inferred is that decisions of adjudicators, to the extent that they deal with the adjudication of a 'payment dispute', within the meaning of s 31(2)(b), are to have the fullest operation. (emphasis added)
[31] CCA s 30.
[32] CCA s 45(1).
[33] Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 [55].
[34] Duro Felguera Australia Pty Ltd v Samsung C & T Corporation [2016] WASC 119 [149].
[35] Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 [87].
In Duro,[36] Le Miere J summarised the provisions of the CCA dealing with the effect and enforcement of determinations, the effect of proceedings under the CCA and the review of adjudications:
Part 3 div 4 deals with the effect of determinations. Section 38 provides that the determination is binding on the parties to the construction contract under which the payment dispute arose even though other proceedings relating to the payment dispute have been commenced before an arbitrator or other person or a court or other body. Section 39(1) provides that a party that is liable to pay an amount under a determination must do so on or before the date specified in the determination. Section 40 provides that where the principal, in accordance with a determination, pays an amount to a contractor the payment is to be taken to be an advance towards the total amount payable under the contract by the principal to the contractor. This section ensures that a payment made as part of a determination is part of the total contract sum and is not a separate payment in addition to contractual rights. Section 41 provides that a determination is final in the sense that, subject to slips, errors or mistakes specified in s 41(2), the adjudicator cannot subsequently amend or cancel the determination except with the consent of the parties and a party to the dispute may not apply subsequently for an adjudication of the dispute.
Part 3 div 5 deals with enforcing determinations. Section 43 provides that a determination may, with the leave of a court of competent jurisdiction, be enforced in the same manner as a judgment or order of the court to the same effect and, if such leave is given, judgment may be entered in terms of the determination.
Part 3 div 6 contains further provisions dealing with the effect of proceedings under the Act and review of adjudications. Section 45 provides that the Act does not prevent a party to a construction contract from instituting proceedings before an arbitrator or other person or a court or other body in relation to a dispute or other matter arising under the contract. Section 45(3) provides that evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body, except for the purposes of an application made under s 29(3) (an application to the State Administrative Tribunal for a declaration that an appointed adjudicator is disqualified) or an appeal under s 46. Section 46 provides that a person who is aggrieved by a decision made under s 31(2)(a), that is a decision to dismiss the application without making a determination of its merits, may apply to the State Administrative Tribunal for a review of the decision. A decision or determination of an adjudicator is otherwise not appealable. The Explanatory Memorandum states that this is a key provision in the Act to prevent appeals being used to delay payment.
The authorities
[36] Duro [33] - [35].
The authorities in relation to the purpose of the CCA and its adjudication process were not in dispute.[37] I refer to the extracts cited by Archer J in Salini-Impreglio SPA, which are set out above.[38]
[37] ts 13 - 14, 19 (30/10/2020).
[38] See [33].
Russell Noble submitted that the remarks of Le Miere J in Duro support the proposition that an adjudication determination gives rise to a debt payable on account of the amounts due under the construction contract and not independent of it. Russell Noble relied on his Honour's comments in relation to s 40 of the CCA:[39]
Section 40 provides that where the principal, in accordance with a determination, pays an amount to a contractor the payment is to be taken to be an advance towards the total amount payable under the contract by the principal to the contractor. This section ensures that a payment made as part of a determination is part of the total contract sum and is not a separate payment in addition to contractual rights. (emphasis added)
[39] Duro [33].
The circumstances of the dispute in Duro are different to those before this Court. In that case, Samsung C & T Corporation (Samsung) engaged Duro Felguera Australia Pty Ltd (Duro) to perform works on an iron ore mining, rail and port project in the Pilbara. The interim subcontract required Duro to provide security for its performance of the contract which it provided in the form of performance bonds. The interim subcontract gave Samsung the right to convert into money any security where Samsung considered, acting bona fide, that it is or will be entitled to recover. Samsung gave Duro notice of its intention to have recourse to the performance bonds. Subsequently, three adjudication determinations were made ordering Samsung to pay various amounts. Duro applied to the court for an interlocutory injunction restraining Samsung from obtaining payment under the bonds. One of the grounds of Duro's application was that demanding payment under the bonds is to disregard, and fail to comply with, binding determinations made under the CCA.
In dismissing the application, Le Miere J held that Duro did not establish a prima facie case that the determinations prevented Samsung from relying upon its contractual entitlement to have recourse to the bonds. In respect to the first ground, Le Miere J found that Samsung retained its contractual right to have recourse to the security despite the existence of the determinations. In arriving at that finding, his Honour said:[40]
The Act preserves rather than overrides the parties' contractual rights except for the provisions of pt 2 which prohibit certain provisions and imply certain provisions into the contract. Part 2 div 1 prohibits specific practices such as 'pay if paid/when paid provisions'. Part 2 div 2 provides implied terms to deal with certain issues. However, as the Minister stated in her Second Reading Speech:
Apart from the specific unfair practices, the Bill does not unduly restrict the normal commercial operation of an industry. Parties to a construction contract remain free to strike whatever bargains they wish between themselves, as long as they put the payment provisions in writing and do not include the prohibited terms.
The Act provides an adjudication process that applies when a party believes it has not been paid in accordance with the contract. That is, the Act does not alter the terms of the contract but provides an interim adjudication of rights under the contract. An arbitrator or court may subsequently deal with the dispute and does so without reference to the findings of the adjudicator as to the facts or the proper construction of the contract.
[40] Duro [41] - [42].
In Diploma, Diploma Construction (WA) Pty Ltd (Diploma) sought to set aside a statutory demand issued by KPA Architects Pty Ltd (KPA) pursuant to the Corporations Act 2001 (Cth) for payment of money that KPA claimed that Diploma owed under a contract for architectural services. The payment dispute had previously been decided by an adjudicator who determined the matter in KPA's favour. KPA had the determination registered as a judgment of the District Court and subsequently issued the statutory demand to Diploma.
Pullin JA (Newnes and Murphy JJA agreeing) dismissed the appeal. His Honour found that an adjudication determination gives rise to a debt 'presently due' and payable by the principal that can be the subject of a statutory demand pursuant to s 459E(1) of the Corporations Act.[41] A statutory demand may be set aside if there is evidence of a genuine dispute, however this was held not to be the case.[42] In setting out the provisions of the CCA relating to the enforcement of adjudication determinations, Pullin JA (Newnes and Murphy JJA agreeing) said:[43]
The effect of a determination has been described as providing for an 'interim' determination and it does not give rise to any res judicata in later civil proceedings: Max Cooper & Sons Pty Ltd v M & E Booth & Sons Pty Ltd (2003) 202 ALR 680 [34]. However, that does not mean that the determination (or a judgment based on it) does not give rise to a debt which is due and payable and which is enforceable. On the contrary, the determination and the judgment do give rise to a debt due and payable. See Perrinepod [32].
[41] Diploma [55] - [57].
[42] Diploma [65].
[43] Diploma [59].
Russell Consolidated submitted that the final two sentences of this paragraph indicate that it is the determination itself that creates the debt, which is why a statutory demand can be issued upon a determination. It therefore asked that this Court follow the analysis of Pullin JA.[44]
Did the adjudication determination give rise to a statutory debt independent of contract?
[44] ts 22 (30/10/2020).
I do not accept the argument that the remarks of Pullin JA in Diploma support the notion that a determination gives rise to a statutory debt independent of contract. A determination certainly gives rise to a debt, but this debt ultimately arises from contract, for the following reasons.
As both parties accept, the primary aim of the CCA is to keep money flowing down the contractual chain by ensuring that progress payments are paid on time. The CCA provides no separate statutory payment system, but rather gives primacy to the parties' agreed contractual payment regime; rather than override the parties' contractual rights, the CCA preserves them.[45] As the Minister stated in her Second Reading Speech, the Construction Contracts Bill 2004:[46]
is based on enforcing the contract between the parties and does not introduce a separate, and possibly conflicting, statutory right to payment.
…
This legislation supports the privity of the contract between the parties. A party commissioning construction work must pay for the work. That party cannot make payment contingent on it being paid first, under some separate contract.
[45] Except for the provisions of pt 2 which prohibit certain provisions and imply certain provisions into the contract: Duro [41] - [42].
[46] Western Australia, Parliamentary Debates, Legislative Assembly, 3 March 2004, 274 (Ms A J MacTiernan, Minister for Planning and Infrastructure).
The adjudication process set out under the CCA does not alter the terms of the contract but provides an adjudication of rights under the contract. Section 40 of the CCA in particular ensures that where an adjudicator determines that a principal is to pay the contractor an amount in respect of the claim, the payment is to be taken as part of the total contractual sum and not a separate payment in addition to contractual rights.[47] That is, the payment is determined on the basis of the contractor's rights under the construction contract and is not separate to, or divorced from, those rights.
[47] Duro [33].
Accordingly, the debt owed by Trupalm resulting from its unpaid adjudication determination arises from Russell Noble's rights under the Contract. I do not accept Russell Consolidated's attempt to characterise as a statutory debt. To do so would undermine the purpose and object of the CCA and the payment scheme that flows from it.
Clause 3.6 of the Contract
The charge given by Trupalm in favour of Russell Noble arises from cl 3.6 of the Contract. It relevantly provides that:
the Client [Trupalm] charges its interest in the site with due payment to the Builder of all moneys that may become payable to the Builder [Russell Noble] arising out of the subject matter of the contract.
Russell Noble submitted that the express wording of the charging clause is plainly broad enough to encompass a debt arising out of an adjudication of a payment dispute under the Contract.[48]
[48] ts 14 (30/10/2020); Judgment Creditor's Reply Submissions [12].
Russell Consolidated submitted that the issue of construction was determined against Russell Noble by the District Court in Russell Noble Constructions Pty Ltd v Sewell[49] and that it would be an abuse of process to relitigate the issue in these proceedings.
The decision in Sewell
[49] Russell Noble Constructions Pty Ltd v Sewell [2019] WADC 148.
Sewell concerned proceedings which Russell Noble had brought against Mr Stephen Sewell as guarantor of Trupalm's obligations under the Contract, including for the amount of the adjudication determination and the legal costs and disbursements incurred by Russell Noble in relation to it.
Mr Sewell applied to strike out the claim against him arising out of the adjudication determination.
Russell Noble argued that the terms of a guarantee clause within a deed of guarantee and indemnity were sufficiently broad to encompass the personal liability Mr Sewell to pay the amount of the determination and its associated costs.[50]
[50] Sewell [6]
The guarantee clause provided:[51]
Guarantor [Mr Swell] guarantees to the builder [Russell Noble], fulfilment of the client’s obligations under the contract including but not limited to the due payment of all monies arising out of the subject matter of the contract.
[51] Lang Affidavit, Annexure MJL-1.
Deputy Registrar Hewitt upheld Mr Sewell's strike out application and arrived at the following conclusion:[52]
In summary therefore, it is my opinion that firstly, since [Mr Sewell] was not a party to the adjudication, its outcome is not binding upon him and does not allow [Russell Noble] to recover any debt from him both as a guarantor or otherwise and secondly, that the terms of the guarantee do not apply to what is essentially an interim order obtained in adjudication proceedings under the [CCA], independently of the involvement of the defendant. For these reasons I am of the view that the portions of the statement of claim that seek to recover the amount of the adjudication and costs allegedly incurred in procuring the adjudication do not disclose a viable cause of action and should be struck out.
Abuse of process
[52] Sewell [9].
Russell Consolidated submitted that the terms of cl 3.6 of the Contract, specifically the words, 'all moneys … arising out of the subject matter of the contract' are identical to the terms of the guarantee considered in Sewell. Given the Registrar has already held that the language of the guarantee does not encompass the adjudication determination, Russell Consolidated contends that the issue of construction as it relates to cl 3.6 of the Contract has already been determined. That is, cl 3.6 does not encompass the determination and registered judgment.[53]
[53] ts 25 (30/10/2020).
To allow Russell Noble to have the Court determine the construction of cl 3.6, Russell Consolidated submitted, would be an abuse of process given this issue has already been litigated and determined by the District Court and Russell Noble has not exercised its right of appeal in respect of that decision.[54] It is alleged that there are no circumstances that justify the collateral challenge to the Deputy Registrar's decision mounted via these proceedings as opposed to Russell Noble exercising its de novo right of appeal.[55]
[54] ts 26 (30/10/2020).
[55] ts 26 (30/10/2020).
Although Russell Noble did not specifically address the abuse of process issue in its submissions, it argues that the decision in Sewell does not dictate the outcome of these proceedings for the following reasons:[56]
(a)the decision did not determine the issue of whether the charge is broad enough to encompass a debt arising out of an adjudication determination;
(b)a decision of a registrar of the District Court is not binding on a Supreme Court judge; and
(c)there is reason to doubt the correctness of the decision, particularly as it relates to the nature of an adjudication determination.
[56] Judgment Creditor's Reply Submissions [16].
Before setting out the relevant principles concerning abuse of process, it is important to note that Russell Consolidated does not rely on the Deputy Registrar's decision as creating precedent which this Court must follow or could possibly follow.[57] As both parties have acknowledged, a decision of a registrar of the District Court is not binding on a judicial officer of this Court.[58] The relevant issue is whether by requesting this Court to consider the language of cl 3.6 of the Contract Russell Noble is mounting a collateral attack on the decision of the Deputy Registrar.
The relevant principles
[57] ts 24 (30/10/2020).
[58] ts 24 (30/10/2020); Judgment Creditor's Reply Submissions [16(b)].
In Hunter v Chief Constable of the West Midlands Police,[59] Lord Diplock affirmed that a court has an inherent or implied power to:
prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.
This passage was cited with approval by Mason CJ, Deane and Dawson JJ in Walton v Gardiner.[60]
[59] Hunter v Chief Constable of the West Midlands Police [1982] AC 529, 536; [1981] 3 All ER 727, 729.
[60] Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378, 393 (Mason CJ, Deane and Dawson JJ).
The onus of satisfying the court that a proceeding is an abuse of process is 'a heavy one'[61] and the procedure should only be exercised 'only in the most exceptional circumstances'.[62]
[61] Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509, 529 quoting Goldsmith v Sperrings Ltd [1977] 1 WLR 478, 498; [1977] 2 All ER 566.
[62] Williams v Spautz citing Jago v District Court(NSW) (1989) 168 CLR 23, 34.
It is well accepted that the categories of abuse of process are not closed and a court may exercise its power in relation to an abuse of process 'as and when the administration of justice demands'.[63] In Walton v Gardiner, Mason CJ, Deane and Dawson JJ observed that:[64]
abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness.
[63] Batistatos v Roads and Traffic Authority of New South Wales [2007] HCA 27; (2006) 226 CLR 256 [9]; Rogers v The Queen [1994] HCA 42; (1994) 181 CLR 251, 255, 286 - 287; Walton v Gardiner (393 ‑ 394).
[64] Sheraz v Vegas Enterprises [2015] WASCA 4 [8]; Jago v District Court (NSW) (74).
Although the abuse of process can take a variety of forms, the High Court has recognised that such cases ordinarily involve at least one of three characteristics:[65]
(a)a court's processes being invoked for an illegitimate or collateral purpose;
(b) the use of a court's procedures being unjustifiably oppressive to a party; or
(c) the use of a court's procedures bringing the administration of justice into disrepute.
[65] Moti v The Queen (2011) 245 CLR 456 [10]; Batistatos [15]; Rogers v The Queen (443 - 444).
The categories of conduct which courts have found to constitute an abuse of process include successive proceedings which cause or are likely to cause 'improper vexation or oppression'.[66]
[66] Jacob I H, 'The Inherent Jurisdiction of the Court' (1970) 23 Current Legal Problems 23, 43.
In Reichel v Magrath,[67] the appellant sought to make a claim in later proceedings based on the facts of an unsuccessful claim made in earlier proceedings. The only material difference was that the later proceedings were brought against a different defendant. In dismissing the later proceedings as an abuse of process, Lord Halsbury LC said:[68]
I think it would be a scandal to the administration of justice, if the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again.
[67] Reichel v Magrath (1889) 14 App Cas 665.
[68] Reichel v Magrath (542).
There is well-established authority that the principles of abuse of process are not confined by the doctrines of res judicata, issue estoppel and Anshun estoppel. A court may invoke these principles to prevent attempts to re-litigate an issue which has in substance been litigated and determined in earlier proceedings.[69]
[69] Sheraz [11].
The inherent power of a court to prevent abuses of process applies to both criminal and civil proceedings.[70] However, as Gleeson CJ, Gummow, Hayne and Crennan JJ observed in Batistatos,[71] the public policy considerations affecting abuse of process in criminal proceedings do not have the same force in civil litigation.[72] The approach to a collateral challenge to a civil judgment or order will therefore generally be less exacting than such a challenge in respect of a conviction.[73]
[70] Donnellan v The Public Trustee [2007] WASC 213 [39].
[71] Batistatos [8].
[72] See Williams v Spautz (520).
[73] Donnellan v The Public Trustee [39]; Batistatos [8]; Jago v District Court (NSW) (26) (Mason CJ).
A review of English decisions relating to collateral challenge was undertaken by Morritt VC in the decision of the English Court of Appeal in Secretary of State for Trade and Industry v Bairstow.[74] Morritt VC drew the following propositions from his review of the case law:
(a) A collateral attack on an earlier decision of a court of competent jurisdiction may be but is not necessarily an abuse of the process of the court … (c) If the earlier decision is that of a court exercising a civil jurisdiction then it is binding on the parties to that action and their privies in any later civil proceedings. (d) If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the Court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.
[74] Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, 12; [2004] 4 All ER 325, 339 - 340.
This passage has been cited with approval in Cleary v Jeans,[75] to which Russell Consolidated referred to in its submissions,[76] and Donnellan v The Public Trustee.[77]
Are these proceedings an abuse of process?
[75] Cleary v Jeans [2006] NSWCA 9 [45].
[76] Claimant's Submissions [61].
[77] Donnellan v The Public Trustee [40], [55].
I am not persuaded that Russell Consolidated has made out that these proceedings are an abusive collateral attack on the decision of the District Court.
Russell Noble was the plaintiff in each case. Mr Sewell, not Russell Consolidated, was the defendant in the District Court proceedings.
In the District Court action, Russell Noble sought the payment of the adjudication amount determination and associated costs from Mr Sewell on the basis that he was personally liable as guarantor of Trupalm's obligations under the Contract. Russell Noble commenced the present proceedings to set aside Russell Consolidated's caveats and to order the sale of the two properties pursuant to the PSSOs and in satisfaction of the debt created by the adjudication determination. Unlike Sewell, Russell Noble is not seeking the recovery of a debt from the defendant, but a third party, namely, Trupalm. The case brought by Russell Noble to this Court is therefore different from the one litigated in the District Court.
However, Russell Consolidated's contention that these proceedings constitute an abuse of process is not based on Russell Noble bringing the same case, but on the fact that Russell Noble's case relies on a construction of the charge that is inconsistent with the decision of the Deputy Registrar. This issue of construction, Russell Consolidated submitted, has already been determined and is thus not open to further determination.
I am not persuaded that the issue before me is the same as that which was considered in Sewell. The Deputy Registrar was dealing with the guarantee given by Mr Sewell, not the charge given by Trupalm. Specifically, the Deputy Registrar considered the scope of the guarantee clause in the deed of guarantee and indemnity to determine whether it encompassed an adjudication determination under the CCA. There is established authority that guarantees are generally construed more strictly than other contractual clauses.[78] The issue in this case is whether the charge under cl 3.6 of the Contract encompasses the determination. Although both issues involve questions of construction, they are nevertheless different.
[78] Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242, 256; Sandtara Pty Ltd v Abigroup (1996) 42 NSWLR 491, 499.
I accept that the guarantee clause and cl 3.6 of the Contract share the phrase, 'arising out of the subject matter of the contract'. However, it is important to construe the clauses as a whole; in doing so, it is apparent that these are different clauses.
Plainly, one is a guarantee and the other is a charging clause. Further, the guarantee clause refers to the 'fulfilment of the client's obligations under the contract including but not limited to the due payment of all monies arising out of the subject matter of the contract' (emphasis added). As submitted by counsel for Russell Noble, and as I will elaborate further below,[79] the words 'under the contract' could well be construed as limiting the scope of matters arising out of the subject matter of the Contract.[80] Clause 3.6 does not contain a similar qualifying phrase.
[79] See [87].
[80] ts 31 (30/10/2020).
Moreover, unlike the guarantee clause, cl 3.6 refers to 'all moneys that may become payable to the Builder' (emphasis added). It cannot be said that the clauses are sufficiently similar to conclude that a construction finding made in relation to one determines a similar albeit separate issue of construction in respect of the other.
I am not satisfied that the decision of the Deputy Registrar in Sewell determined the issue of whether the charge is broad enough to encompass a debt arising out of an adjudication determination. The circumstances of this case are fundamentally different from those before the Deputy Registrar.
It follows that it is not abuse of process for this Court to determine the construction of cl 3.6, to which I will now turn.
The proper construction of cl 3.6
Clause 3.6 of the Contract is set out at [46] above. As noted already, Russell Noble submitted that the language of the clause is sufficiently broad to encompass the debt arising out of the adjudication determination. Particular emphasis is placed on the words 'arising out of the subject matter of the contract' which Russell Noble contends is broader than, for example, 'under the contract'.[81]
[81] ts 14 (30/10/2020).
Russell Consolidated submitted that on a proper construction of the clause, 'the subject matter of the contract' is the primary and secondary rights conferred by the Contract; it does not include a debt arising from a determination under the CCA.[82] Counsel for Russell Consolidated said that while cl 3.6 might capture a claim for damages such as that made in Inghams Enterprises Pty Ltd v Hannigan,[83] it does not go as far to pick up an independent statutory debt created as a result of a statutory process of an inherently interim character.[84]
[82] ts 26 (30/10/2020); Claimant's Submissions [62].
[83] Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82.
[84] ts 27 (30/10/2020).
The construction of particular terms within a written contract involves ascertaining what a reasonable general person would have understood the parties to the instrument to mean. The principles of contractual construction are well-established.[85] Where the contract has been prepared by lawyers from the parties, it will be liable to a more rigorous analysis.[86] Where the document is in standard form such as in this case, the court may look for assistance from previous judicial decisions.[87]
[85] See Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42].
[86] Transfield Pty Ltd v Feiersinger [1988] NSWCA 160.
[87] See Mitsui Construction Co Ltd v A-G (Hong Kong) (1986) 33 BLR 1; 10 Con LR 1, 18; Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, 130; [1941] 1 All ER 33, 48 (Lord Wright).
Clause 3.6 provides that Trupalm charges its interest in the units with due payment to Russell Noble 'of all moneys that may become payable to [Russell Noble] arising out of the subject matter of the contract'. The expression 'all moneys that may become payable' refers to an amount that may become liable to be paid. The debt created by the adjudication determination constitutes moneys presently due and payable to Russell Noble.
The key phrase to ascertaining whether the debt falls within the scope of cl 3.6 is 'arising out of the subject matter of the contract'. The words 'arising out of' are recognised as being of broad import.[88] The use of the expression has been considered in arbitration clauses and less frequently in the context of insurance policies. In Francis Travel Marketing,[89] Gleeson CJ (Meagher and Sheller JJA agreeing) made the following observation in relation to an arbitration clause containing the words 'arising out of this Agreement':
When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. (emphasis added)
[88] Francis Travel Marketing Pty Limited v Virgin Atlantic Airways Limited(1996) 39 NSWLR 160, 165; Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd [2000] WASCA 408; (2000) 23 WAR 291 [67] (Ipp J);
[89] Francis Travel Marketing (165).
Similarly, in IBM Australia Ltd v National Distribution Services Ltd,[90] the Court of Appeal addressed the effect of an arbitration clause expressed to govern 'any controversy or claim arising out of or related to the agreement or the breach thereof' (emphasis added). The court held that these words were sufficiently wide to include claims for relief under the Trade Practices Act 1974 (Cth). Whilst acknowledging that the decisions in Francis Travel Marketing and IBM related to arbitration clauses, I see no reason not to construe the words 'arising out of' in cl 3.6 broadly.
[90] IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466.
The 'subject matter of the contract' is also an expression of wide meaning. Put simply, the subject matter of the Contract is the works described in the Contract to be carried out by Russell Noble. The debt created by the adjudication determination was created as a result of a payment dispute arising from the works carried out by Russell Noble, and thus arises out of the subject matter of the Contract. Accordingly, I am satisfied that the plain language of cl 3.6 is sufficiently broad to encompass the debt created by the adjudication determination.
Russell Consolidated submitted that the reference to the 'due payment of all moneys arising out of the subject matter of the contract' in cl 3.6 must have the same meaning as the identical phrase used in the guarantee clause within the deed of guarantee and indemnity. That is, cl 3.6 should be construed so as not to encompass the determination and the judgment created upon its registration, as found by the Deputy Registrar in Sewell.
However, as I have already observed with respect to abuse of process, cl 3.6 and the guarantee clause are two different clauses.[91] The starting point when dealing with guarantee clauses is to construe them strictly in favour of the guarantor.[92] Further, unlike cl 3.6, the reference to 'the due payment of all monies arising out of the subject matter of the contract' in the guarantee clause is preceded by the words, 'Guarantor guarantees to the builder, fulfilment of the client's obligations under the contract including but not limited to' (emphasis added).
[91] See [73] - [74].
[92] Chan (256).
The due payment of moneys is therefore to be read, naturally, as subject to the preceding words. Accordingly, the payment of moneys under the guarantee clause is limited to those relating to the fulfilment of the client’s obligations under the contract. The scope of this clause is therefore narrower than cl 3.6. To adopt the Deputy Registrar's construction of a clause simply because it contains an identical phrase fails to appreciate the importance of construing contractual clauses as a whole.
I am satisfied that for the reasons provided the debt created by the adjudication determination falls within the scope of cl 3.6 as moneys payable to Russell Noble arising out of the subject matter of the Contract. The amount of the adjudication determination is therefore secured by the charge given by Trupalm under the Contract.
Orders
I order as follows:
1.In CIV 2979 of 2019:
(a)The orders I made on 18 November 2019 extending the operation of the following caveats be set aside and the caveats lapse with immediate effect:
(i)O207793 relating to Lot 1 on Strata Plan 67318, being the whole of the land described in Certificate of Title Volume 2865 Folio 593; and
(ii)O207792 relating to Lot 2 on Strata Plan 67318, being the whole of the land described in Certificate of Title Volume 2865 Folio 594.
(b)Russell Consolidated pay Russell Noble's costs in CIV 2979 of 2019 to be taxed if not agreed.
2.In CIVO 208 of 2018:
(a)The Sheriff seize and sell Units 1 and 2 pursuant to property (seizure and sale) orders 361/2019 and 362/2019.
(b)Within 14 days of the sale of the properties, the Sheriff apply the proceeds of sale in accordance with s 72(2) - (4) of the CJEA and in the event that there is any surplus apply to the court for directions as to the application of the balance of the proceeds.
(c)Russell Consolidated pay Russell Noble's costs of the interpleader proceedings in CIVO 208 of 2018 to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SB
Research Associate to the Honourable Justice Curthoys
31 MAY 2021
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