Stork Electrical Pty Ltd v Leighton Contractors Pty Ltd
[2000] QSC 48
•13 March 2000
SUPREME COURT OF QUEENSLAND
CITATION: Stork Electrical Pty Ltd v Leighton Contractors Pty Ltd & Anor [2000] QSC 48 PARTIES: STORK ELECTRICAL PTY LTD ACN 001 102 516
(plaintiff)v LEIGHTON CONTRACTORS PTY LTD ACN 000 893 667
(first defendant)GREG SPARKMAN (second defendant) FILE NO: No 932 of 1995 DIVISION: Trial Division PROCEEDING: Civil Trial DELIVERED ON: 13 March 2000 DELIVERED AT: Brisbane HEARING DATE: 31 August, 1-2 September 1999 JUDGE: Atkinson J ORDER: The answer to questions 1(a) (b) and (c) is yes. It is
unnecessary to answer question 2.CATCHWORDS:
BUILDING AND ENGINEERING CONTRACTS – CONTRACT – trial of preliminary issues prior to main trial of action – where fundamental obligation of building and design
contract between first defendant, as Manager, and the Principal was the creation of a trust account for the payment of
subcontractors, including the plaintiff – where head contract varied to deny trust practical utility – whether variation of the
head contract amounted to a breach of trust. CONTRACT – PARTIES – THIRD PARTIES – SUBCONTRACTORS – VARIATION – trial of preliminary issues prior to main trial of action – where fundamental
obligation of building and design contract between first defendant, as Manager, and the Principal was the creation of a trust account for the payment of subcontractors, including the
plaintiff – where head contract varied to deny trust practical utility – whether third party could sue on promise in head contract – whether promise was trust property held on trust by first defendant – whether variation of the head contract
amounted to a breach of trust. TRUSTS AND TRUSTEES – BREACH OF TRUST – PROCEEDINGS, THIRD PARTY AND BENEFICIARIES – trial of preliminary issues prior to main trial of action – where
fundamental obligation of building and design contract between first defendant, as Manager, and the Principal was the creation of a trust account for the payment of subcontractors, including
the plaintiff – where head contract varied to deny trust practical utility – whether trust was constituted – whether both money in
trust account and the promise to pay money in trust account by the principal were trust property held on trust by the first
defendant – whether variation of the head contract amounted to a breach of trust. Aberdeen Railway Co v Blaikie Bros (1853) 1 Macq 461; [1843-
60] All ER Rep 249, considered
Bahr v Nicolay [No 2] (1988) 164 CLR 604, considered
Bray v Ford [1896] AC 44, considered
Breen v Williams (1996) 186 CLR 71, considered
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132
CLR 373, considered
Crematoma v The Rice Equalization Association (1953) 89 CLR
286, consideredElder’s Trustee and Executor Company Limited v Symon [1934] SASR 435, considered
Hordern v Hordern [1910] AC 465, consideredHospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, distinguished
Les Affréteurs Réunis SA v Walford [1919] AC 801, consideredLloyd’s v Harper (1880) 16 Ch D 290, considered Lock v Westpac Banking Corporation (1991) 25 NSWLR 593,
distinguished
Mallott v Wilson [1903] 2 Ch 494, considered
Mordecai v Mordecai (1988) 12 NSWLR 58, considered
Phipps v Boardman [1967] 2 AC 46, followed
Princess Anne of Hesse v Field [1963] ALR 998, consideredRe Mulholland’s Will Trusts [1949] 1 All ER 460, followed Re Taylor Howitt v The Union Trustee Company of Australia Ltd [1950] VLR 476, considered
Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294,
distinguished
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, followedTrident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, followed considered
Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70, considered Vyse v Foster (1874) LR 7 HL 318, considered and distinguished followed
Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43, followed Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363, considered COUNSEL: P H Morrison QC and G H Brandis for the plaintiff P M Donohoe QC and J E Stuckey-Clarke for the defendants SOLICITORS: Gadens Lawyers for the plaintiff Blake Dawson Waldron for the defendants
ATKINSON J: This was a trial of a question which was heard as a preliminary
issue prior to the main trial of the action, namely: “whether the first defendant, by
its conduct in:
(a) entering into an agreement with the Crown in right of the State on 22 December 1994, entitled ‘Deed of Variation (No. 2)’, which
varied the terms of the Managing Contractor Contract made on
23 May 1994 in several respects and, in particular, deleted
clause 16.4 of the Managing Contractor Contract and substituted
new terms; or
(b) giving effect to the Deed of Variation, insofar as it varied clause 16.4 of the Managing Contractor Contract;
(c) acted in breach of the trusts in favour of persons and entities (including the plaintiff) falling within the definition “Beneficiaries”
in the Trust Deed, Annexure 6 to the Managing Contractor Contract,
created by:
(i) the Trust Deed; or (ii) clause 16.2(c) of the Managing Contractor Contract.”
Further, to the extent the matters raised by them were not already the subject of the
above question, the following questions were also to be tried as preliminary issues,
namely:
“(a) Was the trust referred to in paragraph 5 of the further amended statement of claim constituted and if so when? (b)
(i) Was the following property trust property:
(A) Such funds as might be deposited in Trust Account from time to time; and (B) Some other property; (ii) If the answer to question (b)(i)(B) is yes:
(A) What was that property? (B) When did it become trust property.
(c) Were the relevant terms of the trust created by the Trust Deed referred to in paragraph 5 of the further amended statement of claim
those alleged in paragraph 6 of the further amended statement of
claim;
(d) Were the duties imposed by the trust upon the first defendant those alleged in paragraph 53 of the further amended statement of claim?
(e) Did the first defendant breach the said duties or any of them as alleged in paragraphs 61 to 64 inclusive of the further amended
statement of claim?”
As is the case in many construction contracts, the rights and liabilities of the
contracting parties developed as contractual relations were entered into and then
formalised by written documents. In summary, the State of Queensland accepted a
tender by Leighton Contractors Pty Ltd (“Leighton”), the first defendant, on
26 February 1993; on 1 November 1993, Leighton accepted a tender by Stork
Electrical Pty Ltd (“Stork”), the plaintiff, for electrical services, the sub-contract
being formally executed on 1 March 1994; a formal written contract was entered
into between Leighton and the State of Queensland on 23 May 1994; and a Deed of
Variation (No 2) (“the Deed of Variation”) was entered into by Leighton and the
State of Queensland on 22 December 1994. The essential question posed is
whether Leighton, in entering into the Deed of Variation, acted in breach of trust.
By a contract dated 23 May 1994 (the “Managing Contractor Contract”), Leighton
contracted with the State of Queensland to design and construct the Brisbane
Convention and Exhibition Centre (“Brisbane Convention Centre”). As is usual in
building contracts, construction work and design was to be carried out by sub-
contractors and consultants. The method of payment to consultants and sub-
contractors, often a fertile source of disputation and litigation, was an integral part
of the negotiations and the agreement entered into between Leighton and the State
of Queensland.
Although the formal agreement for the Managing Contractor Contract was not
entered into until 23 May 1994, Leighton and various consultants and
sub-contractors had by then already entered into agreements and commenced work
on the design and construction of the Brisbane Convention Centre.
Contractual relations between Leighton and the State of Queensland
In October 1992, January and February 1993, Leighton, often referred to as the
manager, had submitted a tender for the Brisbane Convention Centre Project to the State of Queensland, often referred to as the principal, through the Director-
General, Administrative Services Department. Jeffrey Griffin of Q-Build, a
Business Unit of the Department of Administrative Services, was the principal’s
representative. The tender included clauses in substantially the same form as cl 16[1],
[1] See paragraph [36]. Clauses 16.1, 16.2 and 16.4 of the Managing Contractor Contract formed part
cl 21.3 and cl 21.6 of the Managing Contractor Contract and the draft of the Trust
Deed[2]. It was a condition of the tender that the successful tenderer would become a
[2] See paragraph [11].
trustee of payments due to the sub-contractors and consultants from payments made
by the State of Queensland. Clause 16.4 of the Managing Contractor Contract, also
found in the tender which was accepted, specifically provided that:
“All amounts which are payable by the Manager [Leighton] to the
Consultants and the Sub-Contractors are to be paid by the Principal [State of Queensland] into the bank account which is set up by the Manager pursuant to the Trust Deed and shall be held by the Manager on trust for the Consultants and the Sub-Contractors in
accordance with the terms of the Trust Deed.”
[7] The final price tendered was a Guaranteed Maximum Price (“GMP”) of
$138,408,178 including $9,318,437 in design costs, $8,873,048 in preliminaries
fees and $7,330,000 in management fees. The balance was made up of construction
costs payable to sub-contractors.
On 26 February 1993 a letter of award[3] appointed Leighton as managing contractor
[3] Exhibit 23, Vol 2, Doc Y.
of the Brisbane Convention Centre Project. It provided for a guaranteed contract
sum of $138,408,178. The letter of award incorporated[4] the Leighton tender and a
[4] Appendix 1.
number of other documents dated December 1992 including the tender and agreement conditions[5], the terms of the sub-contracts and the contract manual.
[5] The Trust Deed was annexure 6 to the agreement conditions.
These documents set out the rights and obligations of the parties to the contract
formed by the letter of acceptance until such time as the formal instrument of
agreement was executed. The contract between the parties gave rise to contractual
rights and duties between Leighton and the State of Queensland prior to the formal
execution of the Managing Contractor Contract. Furthermore, clauses in the
contract and the Trust Deed made Leighton a trustee, in the case of the Trust Deed,
over property in the trust fund, and in the case of the contract, over contractual
promises made for the benefit of third parties such as sub-contractors and
consultants.
After the letter of award, a design development period led to a number of changes
being made to the design and therefore the scope of works. When the sub-contracts
were let, they were all for a greater scope of work than set out in the original tender
and letter of award.
On 5 March 1993 the first progress claim was made by Leighton on the State of
Queensland. On 16 March 1993 a revised progress claim no 1 was made by
Leighton on the State of Queensland. On 23 April 1993 $1,677,319 representing
moneys payable by Leighton to consultants was paid into the Trust Account by the
State of Queensland.
The Trust Deed
On 19 April 1993 a Trust Deed[6] was executed by Leighton and the State of
[6] See Exhibit 6
Queensland setting up the method for the payment of sub-contractors. The Trust
Deed had been Annexure 6 to the Agreement Conditions and the obligations to
which it gave rise were always part of the contractual arrangements between the
parties. There was not just the co-existence of a contractual and a fiduciary
relationship because of the nature of the contract[7] but the co-existence of a
[7] cf Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97.
contractual relationship and a trust relationship. This was not a case where
contractual rights preceded fiduciary duties[8]. Leighton, as trustee, in accordance
[8] cf Vyse v Foster (1874) LR 7 HL 318 at 332.
with the traditional law of trusts, stood in a fiduciary relationship to the as yet
unidentified beneficiaries[9]. On 21 April 1993 the Trust Account was established by
[9] Breen v Williams (1996) 186 CLR 71 at 137.
the payment of the sum of $10.00 into the account and on 23 April 1993 the first
payment out of the Trust Fund was made by Leighton to consultants.
The Trust Deed provided:
“RECITALS:
…
B. Pursuant to sub-clause 16.2 of the Contract the amounts payable to the Manager [Leighton] under the Contract shall include monies payable to the consultants and sub- contractors engaged by the Manager pursuant to the Contract (“the Beneficiaries”).
C.
Pursuant to sub-clause 16.2 of the Contract the Principal [the State of Queensland] and the Manager have agreed that all monies payable to the Manager on account of the Beneficiaries shall be held on trust on the terms of this Deed.
OPERATIVE:
1. Trust Account
The Principal shall open a trust bank account in the name of theManager styled “Brisbane Convention and Exhibition Centre
Beneficiaries Trust Account” (“the Trust Account”) at the branch of
the bank named in Item 2 of the Schedule. The Manager will be the sole signatory to the Trust Account, and shall be empowered to operate on the Trust Account pursuant to the provisions of this Deed.
2. Trust Property
2.1
The Principal shall open the account referred to in Clause 1 with a deposit of Ten Dollars ($10.00) which, together with any future payments into the account shall be held by the Manager as trustee on trust for the benefit of the Beneficiaries from time to time and on the terms and conditions of this Deed until disbursement. These moneys may only be disbursed in accordance with this Deed and (subject to Clauses 3 and 4) only in favour of the Beneficiaries. The Manager acknowledges and agrees that (subject to Clauses 3 and 4) it does not have and will not have a beneficial interest in the funds contained in the Trust Account (“the Trust Fund”)[10].
2.2
The Principal shall pay all money which is payable under sub-paragraph (c) of sub-clause 16.2 of the Contract into the Trust Account to be held on the above trust.
2.3
Each of the Beneficiaries shall have a beneficial entitlement to ensure that this Deed is administered in accordance with its terms, but none of the Beneficiaries shall be entitled to a specific portion of the Trust Fund, save in accordance with Clause 6 hereof.
2.4
No part of the Trust Fund or the income therefrom shall be held for the benefit of, ever revert to, or be held in trust for the Principal or its estate.
[10] In the unexecuted Trust Deed, which was annexed in the tender documentation, the words
3. Payments out of Trust Account
3.1 The person referred to in Item 3 of the Schedule (“the Principal’s Representative”) shall provide an independent audit of the Trust Account and shall report thereon to the Principal. Where pursuant to the terms of any of the agreements between the Manager and one of the Beneficiaries, the Manager becomes entitled to the payment of money by any of the Beneficiaries or to deduct any money from moneys which are then or will thereafter become payable to any of the Beneficiaries, such moneys may be paid to the Manager out of the Trust Account provided that:
(a) an authorised officer of the Manager provides the Principal’s Representative with a statement setting
out the relevant details and particulars giving rise to
the Manager’s entitlement to these moneys; and
(b) the Principal’s Representative certifies that on the basis of the statement provided by the Manager he believes that such moneys are due and owing by the relevant Beneficiary to the Manager.
3.2 The Manager shall be entitled to make payments to the
Beneficiaries from the Trust Account.. . . 6. Vesting
6.1 Subject to the following provisions of this Clause 6 the Trust Fund and the Trust shall terminate and vest absolutely on the date which is two (2) years from the date of issue of the Final Certificate under the Contract (“the Vesting Date”). The Principal may at any time in its absolute discretion appoint a date earlier than the Vesting Date to be the date for vesting of the Trust Fund for the purposes of this Deed. 6.2 Upon the vesting of the Trust Fund the Manager shall disburse the Trust Fund to the Beneficiaries or (subject to Clause 3 hereof) itself (as the case may be) and thereafter shall provide the Principal with:-
(a) financial statements from the bank at which the Trust Account is established; and (b) receipts from the Beneficiaries of the amounts paid to them, each in a form satisfactory to the Principal and establishing that all payments in and out of the Trust Fund have been made in accordance with this Deed.”
References in the Trust Deed to “the Manager” are references to Leighton;
references to “the Contract” are references to the Managing Contractor Contract; references to “the Principal” are references to the State of Queensland. Stork, as a
sub-contractor, was a member of the class of beneficiaries.
As to interpretation, the defendants argued and I accept that subparagraph 1.2(a) of
the Agreement Conditions provides that clause headings and sub-clause headings in
the Agreement Conditions are not part thereof nor used in the interpretation or
construction thereof or of the Contract. This applies to the Trust Deed which was
incorporated as Annexure 6 of the Agreement Conditions[11].
[11] The Agreement Conditions are found in the Agreed Bundle of Documents Vol 1 pp 1-70.
Clause 2 of the Trust Deed identifies certain items of trust property and also the
rights of beneficiaries. However, it cannot be read in isolation. It must be kept
steadily in mind that it is read in the context of the contract and any obligations to
third parties that arise therein. This is important as trust property identifies “the
subject matter over which the fiduciary obligation extends”[12]. Trust property may
[12] Breen v Williams (supra) at 135; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363 at 370.
be a tangible object or a chose in action such as a right to enforce a contractual
promise made on behalf of a third party[13]. Each of the sub-clauses of cl 2 identifies
[13] Wright, D “Trusts Involving Enforceable Promises” (1996) 70 ALJ 911 at 912; Les Affréteurs
different parts of trust property including the following promises:
(1) that the State of Queensland would open a trust bank account with a deposit of $10 styled “Brisbane Convention and Exhibition Centre
Beneficiaries Trust Account” (the “Trust Account”) at the branch of the
Commonwealth Bank at 240 Queen Street, Brisbane;
(2) that Leighton would be the sole signatory of the Trust Account and be empowered to operate on the Trust Account pursuant to the provisions of the Trust Deed; (3) that the deposit of $10, together with any further payments into the Trust Account (“the Trust Fund”), would be held by Leighton on trust for the beneficiaries in accordance with the Trust Deed; (4) that the moneys in the Trust Account could only be disbursed in accordance with the Trust Deed in favour of beneficiaries; (5) that Leighton had no beneficial interest in the Trust Fund; (6) that the State of Queensland would pay all moneys which were payable under 16.2(c) of the Contract, i.e. the amounts payable to the consultants and sub-contractors under progress certificates, into the Trust Account to be held by Leighton on trust for the benefit of the beneficiaries; (7) that no part of the Trust Fund or the income therefrom would be held for the benefit of or ever revert to the State of Queensland.
Although no beneficiary had a beneficial entitlement to a specific portion of the
Trust Fund except when it vested, each beneficiary had a beneficial entitlement to
ensure that the Trust Deed was administered in accordance with its terms. These
promises were terms that the beneficiaries were entitled to enforce.
Leighton admitted in submissions that had cl 16.2 of the Managing Contractor
Contract not been subsequently varied then, if the State of Queensland refused or
neglected to pay moneys into the trust account, the beneficiaries could have called
on Leighton to administer the trust and Leighton would have been obliged to sue on
the promise contained in cl 2.2 of the Trust Deed. However, Leighton argued that it had exercised its common law right to vary its contract with the State of
Queensland and that therefore there was no longer any property the subject of
cl 2.2. The question remains as to whether this common law right could be
exercised if Leighton acted in breach of trust in the exercise of that right. Stork
submitted that a trustee cannot escape its equitable obligations by varying its
contract with the settlor of a trust. By executing a Deed of Variation deleting
cl 16(2)(c), Stork submitted that Leighton acted in breach of the promise contained
in cl 2.2 of the Trust Deed which was enforceable in favour of the beneficiaries by
Leighton.
Leighton submitted that cl 6 of the Trust Deed enabled the settlor, the State of
Queensland, to bring the trust to an end at any time. Its presence, it said, is
inconsistent with the implication of a term that would prevent the State of
Queensland’s bringing its obligation in relation to progress payments to an end if it
regarded it as in the public interest or commercially expedient to do so, obliging it
to maintain a system of progress claims and certificates for the life of the contract.
Stork submitted however that this clause is simply one which brings an end to the
trust but it was never acted upon and does not derogate from the express promises
in the trust. There is no other express power found in the Trust Deed to vary or
revoke the trust[14].
[14] cf Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 596; Re UEB Industries Ltd Pension Plan [1992] 1 NZLR 294.
Leighton’s sub-contract with Stork
In July 1993 Leighton called for tenders for electrical works for the Brisbane
Convention Centre Project. The trust fund mechanism was in place at this time.
On 22 September 1993 Norman Disney & Young, Leighton’s consulting engineers,
recommended that Stork’s tender be accepted and on 5 October 1993 a letter of
intent was sent by Leighton to Stork. On 1 November 1993, Leighton accepted
Stork’s tender for the sum of $4,379,976.00 conditional upon the execution of
contract documentation including a Queensland Government Approved Sub-
contract Agreement[15], Conditions included in the Tender Document (TP38) and
[15] See Managing Contractor Contract sub-clause 5.1.
Minutes of Pre-Award Meeting dated 18 September, 1993. Peter Short, then the
Queensland manager for Stork, gave evidence that he was aware that the tender
documents referred to the State of Queensland’s paying sub-contractors’ money
into a trust account and that it was significant to Stork as a “safety net” providing
for security of payments to sub-contractors. This is not a trial of a question of
estoppel but it is significant that the third party was aware of the contractual
promise and the Trust Deed and that they were always an integral part of the
dealings between the parties.
Minutes of the Pre-Award Meeting dated 18 September 1993 recorded a meeting
between Mr Short and Bruce Taylor of Stork and Mark Hendrickson and Gerry
Wyman of Leighton. In the formal instrument of agreement between Stork and
Leighton, this document was given precedence over all other sub-contract
documents should the need arise to resolve any problems[16]. Paragraph 46 of the
[16] See Exhibit 3: Special Conditions SC1; Agreed Bundle of Documents Vol 2 p 567.
Minutes records:
“The payment conditions were discussed as follows:
- The subcontractor is to submit a progress claim on or before the
25th of each month.- The Head Contract progress claim is lodged on the 1st of the
month.-
Client [the State of Queensland] issues Certificate within 14 days of receipt of the Head Contract progress claim (possibly 7-10 days).
- Client pays into Trust Account within 21 days of certificate
(could be within a week from the certificate).- Manager to pay Subcontractor within 14 days of payment being
made into Trust Account.. . .”
This method of payment was agreed between the parties and therefore was part of
the contract between Leighton and Stork.
Stork’s tender, which was in the form prescribed by Leighton and the State of
Queensland, contained the following clauses:
“7. RIGHTS AND BENEFITS UNDER MANAGING CONTRACTOR CONTRACT
The Manager will so far as he lawfully can upon the written request and at the cost of the Sub-Contractor obtain for the Sub-Contractor any rights or benefits of the Managing Contractor Contract so far as the same are applicable to the work under the Contract but not further or otherwise and shall when requested in writing by the Sub- Contractor so to do in like manner inform the Sub-Contractor of any action taken by him in this regard.
. . . .”
This clause required Leighton to enforce the rights or benefits given to Stork under
Leighton’s contract with the State of Queensland. Stork was not a party to that
contract and so, under the doctrine of privity of contract, could not itself enforce
them.
Clause 39 sets out in more detail the regime for payment of moneys due to the sub-
contractors referred to in the Minutes of the Pre-Award Meeting.
“39. CERTIFICATES AND PAYMENTS
(a) unless otherwise provided in the Contract, the Sub-Contractor shall submit to the Manager a detailed progress claim, in a form satisfactory to the Manager, every month on or before the 22nd of each month or the day referred to in the Fourth Schedule, showing the contract value of the work carried out in performance of the Contract and incorporated in the Works . . . Within twenty-eight days after receipt by the Manager of such a progress claim or, if the Sub-Contractor fails to submit any such progress claim, at such time as the Manager thinks fit, the Manager shall determine the value of the work so carried out and incorporated and issue a progress certificate to that effect . . .
Payment of moneys due for the value of the work carried out and incorporated shall be made by the Manager in accordance with sub-clause (b) hereof . . .
(b) The Manager shall pay the Sub-Contractor within fourteen (14) days after the Principal has paid the moneys in respect of the relevant progress claim into the bank account established under the Trust Deed provided that if:
(i) the Principal fails to pay money into this bank account as a result of a default by the Manager under the Managing Contractor Contract, or (ii) the Sub-Contractor’s progress claim includes a claim for money which will not be payable by the Principal to the Manager under the provisions of the Managing Contractor Contract,
the Manager shall pay the Sub-Contractor within 42 days of
receipt by the Manager of the Sub-Contractor’s progress
claim under sub-clause 39(a).
The Sub-Contractor shall in respect of all payments made to it by the Manager under this Contract complete a Record of Payment form in the form of that set out in the Ninth Schedule.
. . .
(d)
Where the Contract provides for the Principal or his employee or agent to evaluate the work of the Sub- Contractor, the Manager shall at all times take bona fide and reasonable steps to obtain an evaluation of work carried out and incorporated by the Sub-Contractor and to obtain a
progress certificate including such evaluation.”
The Managing Contractor Contract is defined in Recital A of the sub-contract as the
contract that had been entered into between Leighton and the State of Queensland.
Clause 39(d) of the sub-contract required Leighton to take reasonable steps to
obtain progress certificates and evaluation of the work of the sub-contractor. A
similar process of evaluation applied to the payment of variations. Clause SC31 of
the Special Conditions of the sub-contract provided that payment of sub-
contractor’s variations would not be made until agreed and paid by the State of
Queensland[17].
[17] See Exhibit 3; Special Conditions SC 31; Agreed Bundle of Documents Vol 2 p 582.
Clause 39(b) provided for another method of payment other than by use of the trust
account but its operation was limited by subclauses (i) and (ii). Subclause (i)
applied only to a default by Leighton under the Managing Contractor Contract and
has no operation in the circumstances. Leighton submitted that cl 39(b)(ii) of
Stork’s sub-contract expressly provided for the circumstance that Stork might make
a progress claim for money which would not be payable by the State of Queensland
to Leighton under the Managing Contractor Contract. It imposed an obligation at
law upon Leighton to pay within 42 days of receipt by Leighton of the progress
claim. Leighton submitted that cl 39(b)(ii) was activated once the Managing
Contractor Contract had been varied and a lump sum paid by the State of
Queensland to Leighton, as there was no longer any money “payable by the [State
of Queensland] to [Leighton] under the provisions of the Managing Contractor
Contract” as varied.
It should be noted, however, that the Managing Contractor Contract is defined in
the sub-contract as the contract that had been entered into between the State of
Queensland and Leighton. It is not the Managing Contractor Contract as varied in
the future. Moneys were payable under that contract because that contract created a
liability to pay whether or not the moneys had or had not been paid and whether or
not the contract was later varied. Neither of the exceptions in cl 39(b) applies to
this circumstance. There was no failure by the State of Queensland to pay money
into the trust account as a result of a default by Leighton under the Managing
Contractor Contract. Stork’s progress claims did not include claims for money
which were not payable by the State of Queensland to Leighton under the
provisions of the Managing Contractor Contract as defined in the sub-contract.
Clause 39(b) did not then apply to these circumstances.
The sub-contract required that when a sub-contractor had a claim for payment it
would forward the claim to Leighton who would make an assessment. Leighton
would put all the claims, including their own, to the State of Queensland who would
make their own assessment and then pay the money for the sub-contractors to
Leighton as trustee of the Trust Account. Leighton’s claims were paid to them
separately. Leighton submitted that essentially the only subject matter of the trust
was that, if there was money paid into the Trust Account, then that money in the
Trust Account was trust property. Stork submitted that the promise by the State of
Queensland to pay moneys to sub-contractors through a Trust Account was held on
trust by Leighton for those who had the benefit of it: the sub-contractors and consultants. At the time Leighton entered into the sub-contract with Stork, the
Trust Deed had been executed and so Stork became a beneficiary under the Trust
Deed at the time it entered into a contractual relationship with Leighton. A
variation of the Managing Contractor Contract to change the State of Queensland’s
obligation to pay into a trust account would therefore be in breach of the trust of the
promise.
Work under the Sub-contract
Stork carried out the work (as varied from time to time) under its sub-contract. It
made monthly progress claims pursuant to cl 39 of the sub-contract and received
progress payments. Between 21 April 1993 and 22 December 1994, the procedure
in relation to the sub-contractors was that:
(a) a sub-contractor made its progress claim in respect of the work it carried out during a particular month in accordance with the terms of
its contract with Leighton;
(b) Leighton then recommended the amount payable to the sub- contractor in respect of the progress claim;
(c) after recommendation by Leighton the progress claim was forwarded to the principal’s representative for certification;
(d) upon certification a copy of the certificate from the principal’s representative was provided to Leighton and to the Department of
Administrative Services;
(e) upon receipt of the certificate the Department of Administrative Services paid the amounts due to the sub-contractors to Leighton as trustee by cheque, which Leighton deposited into the Trust Account;
and
(f) Leighton then drew cheques on the Trust Account in respect of the amounts certified by the principal’s representative less retention
where applicable and sent those cheques to individual sub-
contractors.
Mr Williams, on behalf of Leighton, gave evidence in the form of a written
statement that this certification procedure resulted in significant delay in the sub-
contractors receiving payment. He said that a factor that contributed substantially
to the delay in payment was the discrepancy between the contract value of work
under the sub-contracts and the contract value of the corresponding work under the
head contract because the scope of work had already increased before the sub-
contracts were let.
In his oral evidence, however, Mr Williams said that typical reasons that some sub-
contractors’ payments were delayed for a few days were that the sub-contractors
had not provided declarations as to the number of persons employed and that they
had all been paid or they had not provided up-to-date insurance certificates. I do
not accept that the method of payment to sub-contractors through the trust account
afforded any significant delays.
An example of how the procedure worked in practice can be seen by Stork’s first
progress claim. On 25 November 1993 progress claim no 1 was made by Stork on
Leighton for $24,948. This then formed part of claim no 10 which was made by
Leighton on the State of Queensland on 1 December 1993 for $5,047,940. On 6 December 1993 there was an inspection by the Q-Build audit quantity surveyor
and on 8 December 1993 a payment certificate was issued by the principal’s
representative. On 14 December 1993 the State of Queensland’s cheque for
$3,641,345 was drawn in favour of the Trust Account and deposited into the Trust
Account on the following day. Stork’s claim was certified by Leighton at $22,453
($24,948 less retention of $2,495). On 18 January 1994 the sub-contractor’s
statutory declaration of receipt of payment of wages was made and on 19 January
1994 a cheque in favour of Stork for $22,453 was drawn on the Trust Account.
Formal written sub-contract between Stork and Leighton
On 1 March 1994, Stork’s sub-contract with Leighton was formally executed. It
included the documents referred to in the acceptance of the tender, was in the form
approved by the State of Queensland18 and contained reference to the Trust Deed.
Under the sub-contract Stork was engaged by Leighton to supply, install, test and
commission the electrical services for the Brisbane Convention Centre (“the
electrical services work”). Stork was a “sub-contractor” within the definition of
that term in cl 1.1 of the Managing Contractor Contract. Stork carried out and
completed the electrical services work, as described in the sub-contract, and as
varied from time to time by directions from Leighton. The sub-contract was, as has
been previously noted, for a greater scope of works than envisaged in the original
head-contract, as were all the sub-contracts. This was known to the State of
Queensland as they approved each of the sub-contracts.
The Deed of Covenant
On 7 March 1994, a sub-contractor’s Deed of Covenant (“Deed of Covenant”) was
executed by the State of Queensland, Leighton and Stork. The draft of the Deed of
Covenant had formed part of Leighton’s tender and was the Eighth Schedule to
Stork’s sub-contract. This is the only tri-partite agreement entered into between the
parties. Clause 3 of the Deed of Covenant provided as follows:
“3. GENERAL COVENANTS AND ACKNOWLEDGEMENTS Notwithstanding any provision of the Contract or the Sub-Contract each of the Manager and the Sub-Contractor acknowledges and agrees for the benefit of the Principal that:
(a) they will duly and punctually perform their respective obligations under the Contract and the Sub-Contract; (b) they will notify the Principal of any dispute and difference between the Manager and the Sub-Contractor; (c) the Sub-Contractor will notify the Principal of a default by the Manager under the Sub-Contract and the Sub-Contractor will give 30 days’ prior written notice (“the Termination Notice”) to the Principal of its intention to terminate the
Sub-Contract;
(d)
the Sub-Contractor shall not terminate the Sub-Contract if before the expiry of the Termination Notice, the Principal has:
(i)
in the case of a payment default, paid all moneys required to remedy the default; or
(ii)
in the case of any other default, undertaken to remedy it within a reasonable time after the
Termination Notice’s expiry having regard to the
nature and extent of the default or, where the default is incapable of being remedied, to compensate the Sub-Contractor for the default for an agreed amount or, in the absence of agreement, for an amount determined by arbitration.
The arbitration clause of the Sub-Contract shall apply to any arbitration under sub-paragraph (ii) as if all references in that clause to the Manager were references to the Principal;
Agreement Conditions cl 5.1: Agreed Bundle of Documents Vol 1, p18.
(e)
they will not without the prior written consent of the Principal amend, rescind, grant or accept any waiver or discharge of the Sub-Contract, or otherwise alter the obligation under the Sub-Contract whether by the doctrine of estoppel or (without limitation) pursuant to any other principle of law; and
(f) the Principal owes no obligation to the Sub-Contractor unless it otherwise agrees in accordance with this Deed.”
Leighton submitted that cl 3 of the sub-contractor Deed of Covenant expressly
provided that the State of Queensland owed no obligation to Stork unless it
otherwise agreed in accordance with the Deed of Covenant and that there was no
such agreement. However, sub-clause 3(a) provided that the State of Queensland
and Leighton would perform their obligations under the contract and the sub-
contract. The contract was defined in the Deed of Covenant.[19] Those obligations
included the obligations later reproduced in cl 16[20] of the Managing Contractor
Contract and cl 7 of the sub-contract as the Tender and Agreement Conditions.
Because of this provision in the Deed of Covenant, if for no other reason, Stork’s
consent would be needed to change or put an end to these obligations.
The Formal Instrument of Agreement between Leighton and the State of
Queensland
[19] Agreed Bundle of Documents Vol 2 p 557.
[20] See para [36]; Agreed Bundle of Documents Vol 1 pp 48-50.
On 6 May 1994 Leighton sent a letter to the State of Queensland enclosing its
forecast estimate of the final project costs of $172,402,063. On 23 May 1994 a
formal instrument of agreement was executed (“the Managing Contractor Contract”) whereby Leighton was appointed by the State of Queensland as the
Managing Contractor for the design and construction of the Brisbane Convention
Centre. The formal instrument of agreement provided that it was an entire contract.
The second defendant, Mr Sparkman, was Leighton’s project manager for the
project. Leighton submitted that as Stork was not a party to the formal instrument
of agreement, it is necessary to examine the documents executed before the signing
of the formal instrument of agreement in order to determine the relevant legal and
equitable relations between Stork, Leighton and the State of Queensland. This
submission appears to be correct in view of the fact that the sub-contract provides
that the Managing Contractor Contract is the contract that had been entered into
between Leighton and the State of Queensland. However it does not take the matter
any further because the rights and obligations, which are relevant to the
determination of the issues in this matter, such as those found in cl 16 and the Trust
Deed, had already been agreed between Leighton and the State of Queensland and
were not varied or changed by the Managing Contractor Contract.
The formal instrument of agreement provides that the “Contract” means:
“(a)
once the Formal Instrument of Agreement to which these Agreement Conditions are attached is executed, the agreement constituted by that Formal Instrument of Agreement, these Agreement Conditions and all other documents referred to in Clause 2 of the Formal Instrument of Agreement; or
(b)
prior to the execution of the Formal Instrument of Agreement, the agreement in writing between the Manager and the Principal for the execution of the Works, including the documents or the parts of the documents to which reference may properly be made to ascertain the rights and obligations of the parties in relation to the work under the
Contract.”
It does not provide for the contract to mean the contract as it might be subsequently
varied.
The Agreement Conditions and subsequently the Managing Contractor Contract by
cl 16.2 and cl 16.4, made special provision to secure the moneys payable to sub-
contractors. This was done by means of a Trust Account, established by the State
of Queensland in accordance with the terms of the Trust Deed, which was made
Annexure 6 to the Agreement Conditions, and the Managing Contractor Contract.
Mr Short, the Queensland manager of Stork, who had wide experience as a sub-
contractor in the building industry, had never seen such an arrangement before.
While cl 16 made usual provisions for progress claims and progress certificates,
unusually it provided for the payment of moneys, payable under progress
certificates to sub-contractors such as Stork, into a trust account. Clause 16.4
provided that all amounts payable by Leighton to such sub-contractors were to be
paid by the State of Queensland into the Trust Fund set up by the Trust Deed.
Clauses 16.1, 16.2 and 16.4 of the Managing Contractor Contract were always part
of the agreement between Leighton and the State of Queensland,[21] both before and
after the entry into the formal instrument of agreement.
[21] See para [6].
Clause 16 of the Managing Contractor Contract provided:
“16. PAYMENTS 16.1 Payments The Principal shall pay the Manager as follows:
(a)
the Construction Costs progressively in monthly instalments having regard to the Contract value of the Construction Work that has been carried out and incorporated in the Works;
(b)
the Design Costs in monthly instalments having regard to the Contract value of the Design Work that has been carried out;
(c)
the Preliminaries Fee progressively in the monthly instalments set out in Annexure One; and
(d)
the Management Fee progressively in the monthly instalments set out in Annexure One.
16.2 Progress Certificates and Progress Payments The Manager shall submit to the Principal’s Representative a
detailed statement every month on the date stated in Annexure One and within twenty-eight (28) days after the Date of Practical
Completion, in a form satisfactory to the Principal’s Representative,
which shows:
(a)
shows [sic] the amount payable to the Manager for the Construction Costs, Design Costs, Preliminaries Fee and the Management Fee in accordance with sub-clause 16.1; and
(b) the Guaranteed Maximum Price at the date of the statement. Within fourteen (14) days after the receipt by the Principal’s
Representative of such a statement or, if the Manager fails to submit
any such statement, at such time as the Principal’s Representative
thinks fit, the Principal’s Representative shall determine the amount
payable to the Manager and (subject to sub-clause 16.5) issue a progress certificate showing the amount payable to the Manager including (without limitation), the amounts payable to the Consultants and the Sub-Contractors.
The payment of moneys due under a progress certificate shall be made by the Principal within twenty-one (21) days after the issue of that progress certificate as follows:
(c) the Principal shall pay the amounts payable to the Consultants and the Sub-Contractors into the bank account set up by the Manager pursuant to the Trust Deed; and
(d)
the Principal shall pay the Manager the balance of the amount specified by that progress certificate.
… . 16.4 Trust Deed The Manager shall execute the Trust Deed and shall thereafter
deliver an executed copy thereof to the Principal’s Representative
within seven (7) days of the date of acceptance of tender. The execution of the Trust Deed by the Manager within this time period is a fundamental obligation of the Manager under this Contract. If the Manager fails to comply with this obligation this shall be deemed to constitute a fundamental breach going to the root of the Contract.
All amounts which are payable by the Manager to the Consultants and the Sub-Contractors are to be paid by the Principal into the bank account which is set up by the Manager pursuant to the Trust Deed and shall be held by the Manager on trust for the Consultants and the
Sub-Contractors in accordance with the terms of the Trust Deed.”
(Emphasis added)
The “Construction Costs” are defined relevantly by cl 1.1 as “the amounts properly
and actually incurred and payable by the Manager to the Sub-Contractors under the
Approved Sub-Contract Agreements for the performance of the Construction Work
. . .” and the value of variations approved or authorised by the State of
Queensland’s representative. A handwritten correction to cl 16.2(c) makes it clear,
consistently with cl 2.1 of the Trust Deed, that the Trust Account was to be
established by the State of Queensland. The Trust Deed had been entered into by
the time the sub-contract with Stork was formed and payments to sub-contractors
were made in accordance with the procedure set up by cl 16.2.
By cl 16.2 and cl 16.4, the State of Queensland agreed with Leighton to pay all
moneys payable by Leighton to the sub-contractors and the consultants into the
Trust Account. It is well recognised that, where the beneficiary of a contractual
promise is a third party, the promisee may be held to be the trustee of the chose in
action constituting the promisor’s obligation for the third party[22]. This promise was
enforceable by Leighton and, since it was for the benefit of the consultants and sub-
contractors, was one over which Leighton, as trustee of this promise[23], owed fiduciary duties to the beneficiaries. As Fullagar J held in Wilson v Darling Island
Stevedoring and Literage Co[24]:
“. . . equity could and did intervene in many cases by treating the
promisee as a trustee of a promise made for the benefit of a third
party, and allowing the third party to enforce the promise.”
[22] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 121.
[23] viz Lloyd’s v Harper (1880) 16 Ch D 290 at 309.
[24] (supra) at 67.
I am satisfied that the words of the contract in the context of all the dealings
between the parties are sufficient evidence of an intention to create a trust of the
contractual promise. As Mason CJ and Wilson J held in Trident General Insurance
Co Ltd v McNiece Bros Pty Ltd[25]:
“. . . the courts will recognise the existence of a trust when it appears
from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended . . . . In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd v Butts (1986) 6 NSWLR
175 at 189.”
[25] (supra) at 121.
Courts are no longer reluctant to infer the existence of a trust in the case of a
contract for the benefit of a third person[26]. As Deane J said in Trident General
[26] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (supra) at 140; Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 618-619.
Insurance Co Ltd v McNiece Bros Pty Ltd[27] of a trust of the benefit of a contractual
[27] (supra) at 147-148. See also Wilson v Darling Island Stevedoring and Lighterage Co Limited (supra), per Fullagar J at 67; Crematoma v The Rice Equalization Association (1953) 89 CLR 286, per Fullagar J at 319-20; Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 per Lord Wright at 79.
promise:
“In the context of such a contractual promise, the requisite intention
should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself [or herself] be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for
giving effect to that intention. A fortiori, equity’s requirement of an
intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee.
. . .
An intention to create a trust of the benefit of a contractual promise can be evidenced and/or carried into effect by the contract itself or by action of the promisee aliunde. When the trust is created by the actual contract between promisor and promisee, the beneficiary can nonetheless properly be described as a stranger to the creation of the contract. Indeed, he [or she] may be quite unaware of its existence. It would, however, be misleading to say that the promisor, in such a case, is a stranger to the creation of the trust in that the overall effect of the contract itself, to which he [or she] is a party, may be that the relevant promise is made by him [or her] to the promisee in the
latter’s capacity as trustee for the designated beneficiary or class of
beneficiaries and that the intention to create a trust which the contract manifests and carries into effect is a joint intention of both promisor and promisee who might both be regarded as settlors. It is unnecessary to consider here what, if any, rights or obligations in relation to the trust might be enjoyed by or imposed upon the promisor in such a case. What is relevant for present purposes is that, in such a case, there will ordinarily be neither need nor occasion to seek to identify some independent intention (i.e. apart from that manifested in the contract) or action of the promisee. That is not, of course, to say that either the third party or the parties to the contract are restricted to the terms of the contract (to which the third party is stranger) or precluded from relying on other circumstances to
establish or negative the existence of a trust in the third party’s
favour in any dispute between the third party and one or more of the parties to the contract: see, e.g., Royal Exchange Assurance v Hope[28].
[28] [1928] Ch 179 at 185, 195.
The question whether a particular contract itself creates a trust of the benefit of one or more of the promises which it contains is primarily a question of the construction of the terms of the contract. Those terms must, however, be construed in context and a trust of a contractual promise will obviously be more readily discerned in the
terms of some classes of contracts than it will in others.”
Deane J said that it was difficult to imagine a class of contract which was more
likely to give rise to a trust of contractual promise than a contract of liability
insurance which indemnified a contracting party and others specified by name or
class. In this unusual commercial contract where the contractor’s liabilities to its
sub-contractors were to be paid into a trust account by the principal, it is also not
difficult to recognise the intention to create a trust of the contractual promise to pay
to the third party all moneys payable to the contractor on behalf of the third party by
way of the trust fund. This was the intention of both promisor and promisee[29]. This
is a case where both parties intended that the interests of Leighton in the payment to
it of the costs of construction were to be displaced in favour of the sub-contractors
and consultants, by Leighton’s assuming an obligation to act as trustee of those
moneys in favour of the consultants and sub-contractors. It was not, therefore, able
to vary the terms of its obligations by revoking its obligations to the sub-
contractors[30].
[29] Winterton v Hambros (supra) at 370 - 371.
[30] Winterton v Hambros (supra) at 371.
Once paid into the Trust Account, those moneys were subject to the trusts created
by the Trust Deed. The beneficiaries of the State of Queensland’s promise were the
sub-contractors and the consultants. The property of the trust was not just the
money once it came into the Trust Account but also the promise to pay moneys
payable by Leighton to the sub-contractors into the Trust Account.
Although, according to orthodox doctrine,[31] Stork could not sue under the contract
between Leighton and the State of Queensland because it was not a party to that
contract[32], it had rights enforceable in equity because Leighton constituted itself a
trustee for Stork and other third parties of the rights given to third parties under the contract[33]. By varying the contract so that the third parties, which included Stork,
lost those rights, Leighton acted in breach of that trust.
[31] Tweddle v Atkinson (1861) 1 B & S 393; 121 ER 762; cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (supra) at 123, 172.
[32] Subject to s 55 of the Property Law Act 1974, which was not argued before me.
[33] Vandepitte v Preferred Accident Insurance Corporation of New York (supra) at 79.
Leighton submitted that the State of Queensland and Leighton could at any time
have agreed that they wished to dispense with or terminate the trust method of
payment provided that in the exercise of that right to vary, there was no
unconscionable conduct of the sort that would attract equitable relief on the
ordinary principles of unconscientious behaviour. However, in my view, as trustee
Leighton could not do that without, at least, the knowledge or consent of the third
parties for whose benefit the contractual promise was made.[34]
[34] Phipps v Boardman [1967] 2 AC 46 at 105; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 393.
Clause 4.6 of the Contract Manual[35] demonstrates the benefit of the protection
[35] Agreed Bundle of Documents Vol 1 p 229 at p 255.
provided by the trust account method of payment.
“4.6 Trust Deed Annexure Six is the form of Trust Deed which is required by sub-clause 16.4 of the Agreement Conditions. The Trust Deed requires the Manager to set up a trust account for the receipt of moneys paid by the Department to the Manager for work performed by the Consultants and Sub- Contractors. The Manager is trustee of the trust account and remains trustee unless the Managing Contractor Contract is terminated or the Manager is wound up or placed in receivership. Any interest earned on the trust account belongs to the Manager.
The trust account device has been included in the Managing Contractor Contract to protect the Department, the Consultants and the Sub-Contractors against the repercussions of any insolvency of the Manager and to secure payment to Consultants and Sub-Contractors.
Moneys paid into the trust account do not belong to the Manager. It holds this money as trustee for the Consultants and the Sub-Contractors. Accordingly if the Manager is placed in liquidation the money in the trust account is not
available to the Manager’s liquidators for distribution to its creditors.”
Post-contract Negotiations
Mr Williams from Leighton gave evidence that by May 1994 he calculated that the
Brisbane Convention Centre Project would cost significantly more than the GMP
and extensions of time were necessary. Leighton had let sub-contracts for more
than the GMP. Negotiations commenced between Leighton and the State of
Queensland for an increase in the contract price and the time for completion. On
27 September 1994 Leighton delivered substantiation of its claims entitled
“Proposal for Finalising Cost and Time” to the Director General of the Department
of Administrative Services. It noted that one of the objectives of the State of
Queensland was to provide government underwriting of the payments for the sub-
contractors. The objectives of the proposal were said to include providing “a
process which focuses on cost reduction through prudent sub-contract
administration and mitigates the cost of claims preparation and justification.”
Leighton proposed that it certify the sub-contractors. The saving of moneys paid to
sub-contractors was to be one of the benefits to the State of Queensland. In order to
achieve this, Leighton wished to administer and certify all the payments to sub-
contractors through payments which would continue to be made through the Trust
Account, funded to the GMP by the State of Queensland.
On 13 October 1994 Leighton made a without prejudice offer to the State of
Queensland to fix a date for practical completion at 12 May 1995 for a GMP of
$198,748,484 (an increase of approximately $60,000,000).
The offer included the term that Leighton would have the obligation and sole right
to select, administer and certify payment to all sub-contractors who would continue
to “receive timely payment through the project trust account funded by the Principal
to the sum defined as the Guaranteed Maximum Price.” The objectives of this
statement were set out in a letter from Leighton on 19 October 1994. They were
said to include:
“1. Subcontractors, suppliers, consultants, etc will continue to
be paid from the trust account.2. The Manager will continue to administer the trust account including detailed submissions to the Principal for payments proposed and the timely issue of these payments to project creditors. 3. The Principal will continue to fund the trust account in a timely manner and in accordance with the Manager’s submission referred to in 2. above. The limit of the Principal’s liability to fund the trust account will be defined by the Guaranteed Maximum Price and the contract. 4. The sum certified by the Manager shall be only the sum due to the subcontractor for works completed. In respect of variations these shall be approved at both Head Contractor and subcontractor levels prior to being certified for payment. 5. The Manager shall have the sole right and obligation to certify and hence shall have the commercial control necessary to finalise sums due to subcontractors, etc. in a timely manner and within commercial parameters. 6. Full details of all payments made shall be made available to the Principal who shall retain the right to audit at any time. 7. The amounts certified shall be determined with due reference to the budget as adjusted and as varied for the trade package concerned.”
The proposal included $151,043,888 for the cost of construction. This figure
included $2,212,372 in respect of Stork[36]. Leighton gave details of the reason it
[36] Agreed Bundle of Documents Vol 5 p 594.
said its costs had increased including[37]:
[37] Agreed Bundle of Documents Vol 5 p 455.
“The electrical contractor complains that:
- it has been issued with an additional 1063 working drawings
since award of contract;- it has been given 1465 revisions to those additional working
drawings;- many individual drawings have been revised in excess of
20 times;- there have been 545 alterations to switchboard schedules; and - 694 document transmittals have been issued.”
On 28 October 1994, Mr Williams, on behalf of Leighton, wrote to the Director-
General, Department of Administrative Services, with an estimate of contract
variations for four of the sub-contractors including Stork. Mr Williams identified
the variations which had been agreed or identified and why they were justified. He
concluded that given the nature of the work, the circumstances of the project and
the extent of the work to be carried out, the total claim by Stork was likely to be
$2.3 million.
In the meantime the method of payment outlined above continued through the Trust
Account and in November 1994 an audit of the Trust Account by the
Administrative Services Department,[38] from the opening of the account until the
30 June 1994, concluded that the Trust Account was operating in accordance with
the Trust Deed. It concluded that all disbursements from the Trust Account to
beneficiaries were made in a timely manner and to the correct parties. Over 80 per
cent of payments were made within 14 days and Leighton advised the auditor that
any delay in excess of that would have been caused by the sub-contractor being late
in the collection of the cheque or being unable to fulfil the contract conditions
before being paid. This fortifies my earlier conclusion that the method of payment
to sub-contractors through the Trust Account did not give rise to any unacceptable delays. The audit did however identify a failure by Leighton to maintain records to
support the Trust Account balance.
[38] Agreed Bundle of Documents Vol 6 p930.
On 18 November 1994 Deed of Variation No 1 was executed. Mr Williams from
Leighton gave evidence that Deed of Variation No 1 provided that the State of
Queensland agreed to pay $1 million as a deemed progress payment under the Head
Contract and varied the application of clause 1 of the Agreement Conditions of the
Managing Contractor Contract to the particular payment.
On 11 December 1994 an Evans & Peck report[39] commissioned by the State of
Queensland assessed the maximum project exposure of the State of Queensland on
one basis (category C40) at $178,846,670.
[39] An assessment of that report dated 6 August 1999 is Exhibit 9.
On 16 December 1994, Mr Williams produced a draft management plan showing
that Leighton’s total profit expectation from the project was $21,000,000 if the
GMP was raised to $178,000,000. With regard to payments to sub-contractors,
Mr Williams wrote that it would be important that a clear delegation of
responsibility for the finalisation of any claims was maintained to contain and
achieve Leighton’s profit expectations.
The Deed of Variation
Then on 18 December 1994 at a meeting between the State of Queensland and
Leighton, Leighton agreed to complete the Brisbane Convention Centre Project for
$178,000,000 by 12 May 1995 on condition that Leighton was paid all but 10 per cent of the total sum immediately. This agreement was made without the
knowledge or consent of the third parties, including Stork, whose rights would be
affected by it.
Mr Williams says that he was conscious that Leighton was trustee of the Trust
Account and considered it was obliged to pay progress payments in the future out of
the Trust Account in a manner which separated responsibility for certification of
those claims and responsibility for the payment out of the Trust Account. On
22 December 1994, Mr Williams and Mr Hendrickson of Leighton prepared a
document entitled Brisbane Convention and Exhibition Centre Management Plan41.
Clause 3.6 dealt with the Trust Fund. Clause 3.6.1 provided:
“3.6.1 TRUST FUND OPERATION Under the revised head contract arrangements set out in the Deed there will be no regular monthly progress claims by the Manager to the Principal. However, payments to Subcontractors and Consultants will continue to be made from the Trust Fund in accordance with the terms of the Subcontracts and Consultant Agreements.
Management of the Trust Fund will be by the Commercial
Department of Leighton Contractors at St Leonards.Payments will only issue from the Trust Fund following receipt by the General Manager, Commercial of payment claims which have been processed through the Accounting office and approved for payment by R. Gussey.
Payment claims will only be processed if they satisfy the
administrative requirements of the Cost Accounting Department.”
Clause 5 dealt with payment to sub-contractors in more detail particularly with
regard to notification of variations.
Category C reflected the possible maximum but unlikely contractual entitlement of Leighton.
Exhibit 8; Exhibit PJW3.
Mr Williams’ evidence was that he intended by the procedure set out in cl 3.6.1 to
ensure that sub-contractors continued to be paid out of the Trust Account and that
the clerical administration of the Trust Account be handled by a separate
department of Leighton.
On 22 December 1994 the State of Queensland and Leighton entered into a written
agreement entitled Deed of Variation No 2[42] (“the Deed of Variation”) varying the
State of Queensland’s obligations and Leighton’s entitlements under the Managing
Contractor Contract. The affected third parties did not know of the Deed of
Variation and the impact on their rights under the contractual promise made by
cl 16 of the Managing Contractor Contract.
[42] Agreed Bundle of Documents Vol 1 p 363; Exhibit 5.
On 5 January 1995, Mr Bennett from Leighton sent an internal memo to
Mr Williams, Mr Gussey and Mr Sparkman saying, “Given real discipline the
opportunity now exists for a super profit.” It is perhaps trite but nevertheless
appropriate to observe that during the negotiations with the State of Queensland
with regard to varying the Managing Contractor Contract, Leighton was pursuing
its own commercial advantage, including the prospect of increased profit.
Leighton’s acceptance of and advocacy for the abandonment of the payment into
the Trust Account by the State of Queensland must be seen in this light. It is
disingenuous for Leighton to say that the reason for this was to aid faster payments
to sub-contractors since the record of payments prior to the Deed of Variation does
not show any excessive delay in payments. The reason for the change was because
it was in Leighton’s commercial interest.
Clauses 4.1 and 4.2 of the Deed of Variation provided that the State of Queensland
agreed, in consideration of Leighton completing the works in accordance with the
Managing Contractor Contract as varied, to pay Leighton the lump sum of
$178,000,000 in lieu of any other previous promise of payment under the contract.
Leighton agreed to indemnify the State of Queensland for any claim arising from
the Deed of Variation or the administration of the Trust Deed. Clauses 16.1, 16.2
and 16.4 of the Managing Contractor Contract were deleted[43] and cl 16.4 was
replaced by the following:
“The Manager shall be responsible for all payments to
Sub-Contractors and Consultants. Such payment may be made by the Manager through the Trust Account set up pursuant to the Trust Deed and the Manager acknowledges that the Principal shall have no responsibility to make any further payments to the Trust Account for
this purpose.”
It can be seen that the trust did not vest on the signing of the Deed of Variation and
that cl 6 of the Trust Deed had no application.
[43] Deed of Variation (No 2) Schedule 1 cl 23, cl 25.
A cheque for $45,248,773 was deposited into Leighton’s general cheque account on
22 December 1994. Leighton submitted that this lump sum was not paid or payable
under cl 16.2(c) and so was never subject to the trust. However this ignores the
promise made under cl 16.4 that all moneys payable by Leighton to the sub-
contractors and consultants were to be paid by the State of Queensland into the
Trust Account. After the Deed of Variation was executed, no further payments
were made by the State of Queensland into the Trust Account. This additional
payment included moneys payable to Leighton on all accounts, and in particular,
moneys which but for the deletion of cl. 16.2 and alteration of cl. 16.4 of the Managing Contractor Contract, the State of Queensland would have been obliged to
pay into the Trust Account.
The effect of the Deed of Variation was to release the State of Queensland from its
promise to pay moneys payable by Leighton to the sub-contractors and consultants
into the Trust Account. Prior to the Deed of Variation, the sub-contractors’ and
consultants’ entitlements were secured by the State of Queensland’s obligation to
pay progress payments directly into the Trust Account. They were then held by
Leighton, as trustee, on the trusts created by the Trust Deed. The release of the
State of Queensland from that obligation deprived the trust of practical utility. The
sub-contractors and consultants became merely unsecured creditors of Leighton.
As Leighton was trustee of the contractual promise, by entering into the Deed of
Variation to delete the promise, it acted in breach of trust.
Stork submitted and I accept that Leighton held the benefit of the State of
Queensland’s promise by cl 16.2 and cl 16.4 to pay into the Trust Account moneys
payable to the sub-contractors and consultants, as trustee for the sub-contractors and
consultants. The same entities which were identified as “Beneficiaries” under the
Trust Deed, including Stork, were also beneficiaries of the promise made by cl 16.2
and cl 16.4, and the promisee (Leighton) held that chose in action on trust for those
beneficiaries.
Once the fiduciary relationship is in existence the trustee is unable to contract in
regard to the trust property[44]. A trustee must not use property the subject of the trust, or its position as a trustee, to seek to obtain for itself some benefit.[45] As
[44] Re Mulholland’s Will Trusts [1949] 1 All ER 460 at 463.
[45] Phipps v Boardman (supra) at 103, 106, 118.
Viscount Sankey held in Regal (Hastings) Ltd v Gulliver[46]:
“In my view, the respondents were in a fiduciary position and their
liability to account does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he [or she] has or can have a personal interest conflicting with the
interests of those whom he [or she] is bound to protect.”
A fiduciary is bound to account for any benefit or gain which has been obtained in
circumstances where a conflict or significant possibility of conflict existed between
the fiduciary duty and personal interest in the pursuit or possible receipt of the
benefit or gain[47]. Here there was a clear conflict between Leighton’s duty as trustee
and its commercial interests.
[46] [1942] 1 All ER 378 at 381; see also Aberdeen Railway Co v Blaikie Bros (1853) 1 Macq 461 at 471; [1843-60] All ER Rep 249; Bray v Ford [1896] AC 44 at 51; In re Taylor; Howitt v The Union Trustee Company of Australia Ltd [1950] VLR 476 at 479.
[47] Breen v Williams (supra) at 135; Warman Interntational Ltd v Dwyer (1995) 182 CLR 544 at 557.
There is an exception[48] to the general rule set out in Regal (Hastings) Ltd v
[48] See Ford and Lee, Principles of the Law of Trusts 3rd ed, LBC, 1996 at [9680].
Gulliver. That exception is found in Vyse v Foster[49], Hordern v Hordern[50], Re
[49] (supra).
[50] [1910] AC 465.
Mulholland’s Will Trusts[51] and Princess Anne of Hesse v Field[52] and is described
[51] (supra).
[52] [1963] ALR 998.
by Hope JA in his leading judgment in Mordecai v Mordecai[53] as follows:
[53] (1988) 12 NSWLR 58 at 66-67.
“That exception is where a testator or settlor, with knowledge of the
facts, imposes on a trustee a duty which is inconsistent with a pre- existing interest or duty which he [or she] has in another capacity. In that situation the trustee is not thereby debarred from accepting the
trust or from performing the duties which are imposed under it.”
There can be no criticism of a trustee if he acts in accordance or substantially in
accordance with his pre-existing contractual rights and obligations[54]. It can be seen
that this exception does not apply to this case. The fiduciary relationship between
Leighton and Stork did not post-date the entry into a contract between them, and the
settlor of the trust, the State of Queensland, did not impose on Leighton a fiduciary
duty inconsistent with any pre-existing contractual interest as the execution of the
Trust Deed was a fundamental obligation of the contract between Leighton and the
State of Queensland.
[54] Vyse v Foster (supra) at 334; Hordern v Hordern (supra); Re Mulholland’s Will Trusts (supra) at
By entering into the Deed of Variation, the State of Queensland’s promise to pay
into the trust account was extinguished and as Leighton had become trustee of the
State of Queensland’s promise to pay progress payments into the trust account,
Leighton breached its trust by entering into the Deed of Variation.
Was the trust revocable?
Leighton submitted that the trust, if it were found to exist, was revocable rather than
irrevocable. In Wilson v Darling Island Stevedoring and Lighterage Co Ltd[55]
[55] (supra) at 68.
Fullagar J after questioning the reluctance which courts had sometimes shown to
infer a trust in such cases, said he could not see why it should be necessary that
such a trust be irrevocable. This view is the opposite of that articulated by the Law
Revision Committee in its Sixth Interim Report (State of Frauds and the Doctrine of
Consideration)[56] which said that the rule at common law was that the trust was not revocable by the promisor or the promisee[57]. Whether or not it is revocable is a
question of intention[58]. It is accepted in the texts[59] that in general a settlor cannot
revoke or vary[60] a completely constituted trust unless the settlement reserves a
power of revocation. The onus of proving that the trust is revocable is upon those
who allege the deed is revocable61. The power of revocation must be exercised
according to the terms in which it is reserved.
[56] 1937 Cmd 5449.
[57] (supra) at para [47].
[58] Elder’s Trustee and Executor Company Limited v Symon [1934] SASR 435.
[59] See Snell, Principles of Equity 29th ed, London, Sweet & Maxwell, 1990 p 127; Ford and Lee, Principles of the Law of Trusts para [1140]; Mallott v Wilson [1903] 2 Ch 494; Trident v McNiece (supra) at 116, 121.
[60] An application may be made to the Court to vary a trust under s95 of the Trusts Act 1973.
A commercial factor relevant to the question of the intention of the parties in this
case includes the inappropriateness of restricting the capacity to vary the head
contract inasmuch as it would prevent the State of Queensland and Leighton
responding to changed circumstances by varying their agreement. However there
was great scope to vary the head contract without affecting the trust of the
contractual promise in cl 16.
Clause 6.1 of the Trust Deed conferred upon the State of Queensland an absolute
discretion to appoint an early vesting date. This power was not exercised. It was
submitted by Leighton that an intention to create a trust of a promise by the State of
Queensland to pay progress payments into the Trust Account throughout the entire
life of the contract might be thought to be inconsistent with the express power
conferred on the State of Queensland to bring that account to an end at any time in
the life of the contract. The creation of the trust structure was however fundamental
to the contractual obligations entered into by all the parties. This is more consistent with the trust not being revocable except in the specific circumstance and in the
manner set out in cl 6.1 of the Trust Deed.
The trust created in favour of the beneficiaries was not intended to be revocable, at
least not without the knowledge and consent of the beneficiaries62. To revoke it
without the knowledge or consent of the beneficiaries was in breach of trust. In this
case the Deed of Variation terminated the trust arrangement under cl 16 of the
contract without the knowledge or consent of the beneficiaries and so was in breach
of trust.
As the benefit of cl 16.2 and cl 16.4 was held by Leighton on trust for the class of
persons to which Stork belonged (the beneficiaries of the Trust Deed), the entry into
Deed of Variation No 2 was a plain breach of trust for which Leighton ought to be
held liable to account63.
Conclusion
The answer to the central question posed in this trial of a preliminary issue is as
follows. Leighton entered into an agreement with the State of Queensland on
22 December 1994 entitled Deed of Variation (No 2). This Deed varied the terms
of the Managing Contractor Contract made on 23 May 1994 in several respects. In
particular, it deleted cl 16.4 of the Managing Contractor Contract and substituted
new terms. Leighton gave effect to the Deed insofar as it varied cl 16.4 of the
Managing Contractor Contract. In so doing, Leighton acted in breach of the trusts
Elder’s Trustee and Executor Company Limited v Symon (supra) at 439.
Warman International Ltd v Dwyer (supra) at 563.
Warman International Limited v Dwyer (supra) at 557-558.
in favour of persons and entities (including Stork) falling within the definition
“Beneficiaries” in the Trust Deed created by the Trust Deed and cl 16.2(c) of the
Managing Contractor Contract.
The additional questions are rather poorly expressed and in any event the matters
raised by them are already covered by the first question. In those circumstances, it
is unnecessary to answer them.
It follows that the answers to the questions posed as the preliminary issue are:
1(a) (b) and (c). Yes.
2 . Unnecessary to answer.
of the Leighton’s tender. Clause 16.3 in the tender was deleted and a new provision inserted by cl 8
of the Formal Instrument of Agreement.
“contained in the Trust Account” did not appear. In their stead, were the words “which from time to
time are standing to the credit to the Manager in the Trust Account.” There is no difference in the
meaning or effect and none was argued.
Réunis SA v Walford [1919] AC 801; Wilson v Darling Island Stevedoring & Lighterage Co Ltd
(1956) 95 CLR 43.463; Princess Anne of Hesse v Field (supra) at 1009.
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