Stork Electrical v Leighton Contractors

[2001] HCATrans 379

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B5 of 2001

B e t w e e n -

STORK ELECTRICAL PTY LTD

Applicant

and

LEIGHTON CONTRACTORS PTY LTD

First Respondent

GREG SPARKMAN

Second Respondent

Application for special leave to appeal

GLEESON CJ
KIRBY J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 12 OCTOBER 2001, AT 11.07 AM

Copyright in the High Court of Australia

MR R.B.S. MACFARLAN, QC:   If the Court pleases, I appear with my learned friend, MR G.H. BRANDIS, for the applicant.  (instructed by Gadens)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MS J.E. STUCKEY-CLARKE, for the respondents.  (instructed by Blake Dawson Waldron)

GLEESON CJ:   Yes, Mr MacFarlan.

MR MACFARLAN:   Your Honours, this application raises important questions about the circumstances in which trust obligations may be extinguished.  Could I commence by taking your Honours to page 41 of the application book where the provisions of the trust deed are set out.  Your Honours will see at line 41 the commencement of the trust deed and in clause 1 at the foot of the page provides for a trust account to be opened, that is by the head contractor, Leighton.

KIRBY J:   You start with the point that it is two‑all in the Supreme Court, though the two that mattered were in the Court of Appeal and that the point is one that has been expressly and specifically reserved by three Justices of this Court in Trident.

MR MACFARLAN:   Yes, I can certainly put the former part of that, your Honour, I do not think I can put the latter quite as highly as that.  Justices Mason and Wilson seem to ‑ ‑ ‑

KIRBY J:   I only read the extracts in your argument, I have not gone to the court - - -

MR MACFARLAN:   Yes, I think there is one aspect which cannot be put as highly as it is in the written submission.  Namely Justice Brennan, as we can see, seem to be talking in the passage quoted about the rights of third parties intended to benefit under contract pursuant to normal contract principles rather than trust principles.

KIRBY J:   What about Justice Mason and Justice Wilson?

MR MACFARLAN:   They were talking about trust principles.

KIRBY J:   Yes.  I am sorry I interrupted you.

MR MACFARLAN:   Yes, your Honour.  At page 42 of the application book, line 5, the trust property is defined, and paragraph 2.1 provides the opening by Leighton of the trust account and importantly clause 2.2 in the middle of the page provides for the principal, that is the Queensland government, to:

pay all money which is payable under sub‑paragraph (c) of sub‑clause 16.2 –

that is the head contract –

into the Trust Account to be held on the above trust.

So one has here, your Honours, under the heading “trust property” in this trust deed which has been solemnly entered into by the Queensland government and Leighton, a promise of the Queensland government in favour of Leighton to make payments to augment the trust fund, albeit the trust account.  The conclusion, we submit, is inevitable that that promise set out in clause 2.2 is itself part of the trust property and the promise is held on trust.

There is an argument about whether the promises, which I will come to in a moment, set out in the head contract as distinct from the trust deed ‑ ‑ ‑

KIRBY J:   What actually happened, Mr MacFarlan?  Where is the bone?

MR MACFARLAN:   The bone was that by agreement between the Queensland government and Leighton these provisions were abrogated.  This promise was extinguished so that Leighton got the money itself and was left to deal with the subcontractors, and I want to refer to passage of the judgment about that.

KIRBY J:   That was before moneys had been paid into the trust account?

MR MACFARLAN:   Moneys had been paid in and dispersed in accordance with contemplated procedure, but there were further moneys to be dealt with in that way.

KIRBY J:   Were they in the trust account or had they not yet reached it?

MR MACFARLAN:   There is no dispute about moneys in the trust account.  I could not say actually whether there were any in there at the time.

KIRBY J:   I see, so we are not concerned about moneys that had been paid into the trust account?  We are concerned about an alternation of the arrangement between the government and Leighton that produced the result that this obligation to pay further moneys into the trust account disappeared?

MR MACFARLAN:   That is so.  We are concerned with the extinguishment of the promise of the government to pay moneys into the trust account.

KIRBY J:   Being a promise to Leighton?

MR MACFARLAN:   To Leighton.  We say held on trust because ‑ ‑ ‑

KIRBY J:   What was held on trust?

MR MACFARLAN:   The promise, your Honour.

KIRBY J:   The chose in action?

MR MACFARLAN:   Yes, chose in action, it is a Lloyd v Harper-type trust of a chose in action.  The promise appears there under the heading trust property in the trust deed and we submit, with respect, there is little room for argument about the fact that the promise was held on trust.  Moreover, there was, in any event, a trust of the provision in the head contract, which I will come to in a moment.  Just before I leave the trust deed, at the foot of page 42 your Honours will see that the principal’s representative was to “provide an independent audit of the Trust Account”.  These procedures were, of course, designed for the protection of the subcontractors primarily against the insolvency of the head contractor, but also against misdealing by the head contractor with funds that were put into the trust account.

The way in which the trust deed came to be entered into can be seen by reference to the provisions of the head contract which are set out at page 58 of the application book.  At the foot of the page at clause 16 is the relevant payment and that provides, in the last two lines of page 58, for the constructions costs to be payable in monthly instalments.  At line 10 on page 59, clause 16.2, the manager is to submit a detailed statement, (a) showing the amount payable to the manager for the construction costs and other matters.  Pausing there, constructions costs is defined on the next page at line 12 as the amounts payable to subcontractors.

Returning to the middle of page 59, so there is a statement to be submitted.  At line 25 there is a progress certificate to be issued, and then (c), at line 30, the principal is pay the amounts into the trust account it established.

GLEESON CJ:   Mr MacFarlan, we though we would be interested to hear what Mr Jackson has to say.

MR MACFARLAN:   Yes, your Honour.

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, what we submit is that one when actually looks at the nature of the case it is not of sufficient importance to merit the grant of special leave, and may I seek to indicate why that is so.  Your Honours, could I indicate first what happened at the time when there was the variation of the arrangements.  Your Honours will see that referred to at page 112 in the reasons for judgment of Justice Williams, commencing at paragraph [98] and going through to paragraph [102] on page 113.

KIRBY J:   Was there any difference in substance between the analysis of the Chief Justice and Justice Williams?

MR JACKSON:   I think in the end not, your Honour, because Your Honours will also see that Justice Williams agreed with the Chief Justice and his reasons.  That appears at the top of page 110.  The point I was going to make about is this.  If one looks to see what is actually involved in the case, what has to be borne in mind is that the applicant’s case involves not one, but two, sums of money.  The first is the amount said to be due under the subcontract.  Your Honours can see the claim in that regard from the statement of claim which is in the volume which has the title, “Materials upon which the respondents propose to rely”.  I want to take your Honours to page 36 of that volume.

GLEESON CJ:   Is this the page headed “Particulars”?

MR JACKSON:   Yes, it has that up the top of the page, your Honour.  It is under paragraph 33 and your Honours will see in the end that when one comes to paragraphs 38 and 39 at page 39, your Honours will see there is a claim saying that we have paid 4.745 million and there is due a sum payable in the end of 2.352 million.  Now, your Honours, that is the amount said to be due under the subcontract and the work under the subcontract continued until 12 May 1995, that is six months, in effect, after the variation.  That that is so your Honours can see from the statement of claim at paragraph 36(a) of the same document.

Now, your Honours, the payments made as subcontract payments were both before and after the change in the procedure and they were payments made in, in a sense, the ordinary course of events, although there was a different certification involved.  There is a dispute about the amount owing under that.  That will be dealt with in the ordinary way in matters not the subject of this claim.  Your Honours, there is no suggestion that if any amount is found to be owing, that sum will be held to be due.

There are other causes of action in respect of the same sum.  In effect, your Honours can see it in the statement of claim, quantum meruit, Trade Practices Act negligence and so on.  Your Honours, there is, however, another claim and the reality of that claim is that the applicant seeks more than any amount it might obtain under the subcontract but is seeking to obtain what your Honours will see at page 58 paragraph 71(h) and that is that it seeks, in a sense, not only to obtain the amounts that might be due to it under the subcontract but also to obtain a share of any profit of the settlement money that was, in fact, the 45 million that is referred to elsewhere in the reasons for judgment, the money that was obtained at the time when the change in the arrangements was made in order to arrive at the settlement with the State Government.

So, your Honours, that is fundamentally the claim in respect of the trust, not to obtain the money due under the subcontract but to obtain a piece of the new action, as it were, a piece of the profit.  That that is so appears from Justice Williams’ reasons for judgment at page 113 of the application book at paragraph [105].

GLEESON CJ:   What was the point of departure between the majority and Justice Thomas?

MR JACKSON:   Your Honour, it seems to come fundamentally to the question whether the arrangements between the government and Leightons were such that we and the government together were precluded from varying them to bring the trust to an end in futuro.  That is the second aspect with which I wish to deal and I will come to it in just a moment if I may, and that is the question that this is, in our submission, a case turning in the end upon the terms of the particular contracts involved, and I will take your Honours to the parts in the reasons that demonstrate that.

I referred your Honours to paragraph [105] at page 113 where his Honour sets out the nature of the argument and what we would seek to say is that there is no suggestion, in our submission, in any of the cases that where there is a trust of a contractual promise that the remedies of the beneficiary could exceed those – I am speaking in monetary terms – that would be applicable if it were itself the party to the contract.

Could I in that regard refer your Honours to the way in which the rights of a beneficiary are referred to in Trident General Insurance Co v McNiece Bros Pty Ltd (1988) 165 CLR 107, for example. It is in the book of authorities, your Honours. It should be the first case. Could I take your Honours to Chief Justice Mason and Justice Wilson at page 115 of the report – it is page 9 of the record. Your Honours will see in the fifth line on that page their Honours say:

The Privy Council recognized that the common law rules are qualified by the equitable principle that a party to a contract can constitute himself a trustee for a third party . . . so that the third party can enforce the promise –

Your Honours will see too page 118 of the report, page 12 of the book, a reference towards the bottom of the page, about point 7 on the page:

The orthodox view is that ordinarily the promisee is entitled to nominal damages only because non‑performance by the promisor . . . causes no damage to the promisee –

and there is a reference to Lord Justice Lush in Lloyd’s v Harper, the more expansive view.  Your Honours will see it concludes with the observation:

and recover all that B. could have recovered if the contract had been made with B. himself.”

Your Honours, similar observations can be seen - Justice Brennan at page 135, the passage commencing about six lines down the page:

A promisee may be or become a trustee of the promise for a third party –

The passage goes through to halfway down the page, Harmer v Armstrong, and also page 138, the paragraph commencing about point 6 and going towards the bottom of the page.

KIRBY J:   Justice Brennan of course was dissenting in Trident.

MR JACKSON:   Yes, I appreciate that, your Honour.  He was speaking generally about this aspect.  Justice Deane at page 146, in the first new paragraph on the page, about five lines into that:

“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, making the promisee‑trustee, if necessary, a defendant in an action –

The next page, your Honours, page 147, the last four lines and going over to the top of the next page.  I would refer also, without taking your Honours to the passages, to Justice Dawson at pages 156 and 157 and Justice Toohey at page 166.

GLEESON CJ:   How and to what extent were the subcontractors worse off as a result of the change in the arrangements?

MR JACKSON:   Well, your Honour, two things only can be pointed to, I think it is right to say.  One is to say that the absence of an independent certification for the number of dollars and, your Honours, essentially, that is it.  There is a dispute, as there often would be, about how many dollars would be paid in the end but that is the essence of it.  They had been paid before and after the change.  In fact, they were paid from the same account.  We put the money directly into it as distinct from the government having put the money into it.

So, your Honours, that is the essence.  The case, essentially, is a building case on the one hand, which has yet to be resolved; on the other hand, it is the claim seeking to obtain some of whatever profit we might have made by the final wind-up of the arrangement between us and the government, when your Honours have seen, as Justice Williams said, we got an increase in the total contract price but we accepted other risks under it.

The second thing I was going to say was this, that the case, in our submission, was decided very much on the terms of this contract, and the majority in the Full Court held that the terms of it gave an entitlement to vary the arrangements by agreement.  Could I refer your Honours to the passages where one sees that.  Chief Justice de Jersey at page 93, paragraph 17 ‑ ‑ ‑

KIRBY J:   The applicant says this form of contract is not uncommon and, for example, it is used by the Department of Defence. 

MR JACKSON:   Well, your Honour, the arrangement for a trust, we would accept, is one the Department of Defence uses.  However, the question of the arrangements between the parties depends on the other terms of the contract.  Your Honours will see, if I could go to paragraph 17 at page 93, that Chief Justice de Jersey refers to one of the provisions envisaging the possibility of variation.  Similarly, at page 94, paragraph 21, at the top of the page, he refers to a covenant which appeared in the tripartite agreement, clause 3(f).  Your Honours will see the actual clause set out on the previous page at about line 35 as an indication that the obligations were not to be immutable.  Also at page 94, paragraphs 22, 23 and 25, where he refers to paragraph 6.  Your Honours will see Justice Williams at page 110, in paragraphs 89 and 90, and we would refer particularly to the last four lines of paragraph 89. 

KIRBY J:   You try to make it a horrible prospect by saying it is a building case, but it does seem to raise a point that Justice Mason and Justice Wilson

reserved, and it is not without some general interest in terms of doctrine.  You are here, and Mr MacFarlan is here, and these are well-resourced parties.  It has some attractions. 

MR JACKSON:   Your Honour will destroy any practice I have, by ‑ ‑ ‑

KIRBY J:   Not least counsel. 

MR JACKSON:    ‑ ‑ ‑ making my presence a factor one way or the other.  I wish it would work both ways, your Honour.  Could I just say in relation to it, if one is looking at it, this is not a case where - I am not suggesting that this Court has to get into the building aspects of it at all.  What I am saying is that the building case aspect of it is one that has to be determined, and pursuant to that, any amount capable of being obtained under the contract. 

GLEESON CJ:   I thought you were conveying a subliminal message that the applicant has no merit. 

MR JACKSON:   In relation to the 40-odd million, your Honour?  Yes, I am - not subliminal, direct.  Your Honours, having said that, the point I am seeking to make about it is that the building case aspect does not involve the Court.  What I am saying is that whatever amount may be obtainable is obtainable in the case in the ordinary way and there is a dispute about whether it has or has not been paid.  But in relation to the remainder of it, there is nothing, in our submission, to suggest that the general notion is one applicable at all, and secondly, we would seek to say that if one looks at how the case was decided, it was decided upon particular facts.  No doubt there is a difference of view in the courts about how they should be resolved, but it was very much turning on its own construction. 

GLEESON CJ:   Mr MacFarlan, I am just interested to know how your clients were worse off as a result of the variation arrangements that took place. 

MR MACFARLAN:   There are a number of respects, your Honours.  One was that Leighton’s role as head contractor changed from a certifier that was largely independent to one that was partial because, under the changed arrangements, the money was then coming out of Leighton’s pocket.  It had the greatest of incentives to keep the subcontractors’ entitlements down as far as possible.  The fact that that has reality can be seen from the documents which show that when dealing with the Queensland Government, Leighton earmarked 2.2 million in respect of Stork, that is, in the dealings leading up to the variation which led to a payment of $45 million to Leighton. 

So it earmarked that amount in respect of Stork but then, the variations having been made, when it comes to deal with Stork, it denies our entitlement to the 2.3 million which is our contract claim, which is pretty much the same amount as was earmarked when Leighton was speaking to the government, so its attitude has changed considerably.  One of the virtues of the original system was that the managing contractor acted in a quasi‑independent role in certifying the amounts due to the subcontractors and telling the principal what was owing.

The second matter, your Honours, is that Stork has lost the security provided by the trust account arrangements.  We know that our claim is disputed – the 2.3 million or 2.6 million, on one basis – and the prospect is faced of a building case, assuming this trust allegation does not proceed, of considerable length and complexity, and the prospect of some years before payment. 

Now, in these troubled times, one cannot make any assumptions about the solidarity of companies with whom one is dealing and the virtue of the arrangement was that we had security.  The third matter is that the trust arrangements provided for an independent audit of the trust account by the government, and that function has now disappeared.

GLEESON CJ:   I thought Leighton were a highly successful company, but still ‑ ‑ ‑

MR MACFARLAN:   So was Ansett, your Honour, for all intents and purposes.

GLEESON CJ:   Things can change, yes.

MR MACFARLAN:   As to other matters that were raised in the course of what my learned friend said, the differences between the Chief Justice and Justice Williams, the Chief Justice accepted that there were trusts but he ignored the question of whether the trustee had a duty to consider the interests of the beneficiaries when joining in the proposal to vary or extinguish the promises.  He ignored that altogether.

KIRBY J:   That is the interesting point in the case really, it seems to me.

MR MACFARLAN:   Yes, with respect, it is.  The trial judge focused on the ‑ ‑ ‑

KIRBY J:   But what do you say to Mr Jackson’s suggestion that this is a fairly unusual and unique contract?  That does not necessarily put you out of the Court because otherwise we do not deal with any contract cases, but

can it be said that it is a fairly unique arrangement and, therefore, it is not going to throw up general principle?

MR MACFARLAN:   That really points to the real vice in the Chief Justice’s reasoning, your Honour, in that he did look at the contractual provisions and said Leighton can join with the government in varying or extinguishing these promises, but failed to have regard to the overriding equitable obligations which Leighton assumed by becoming trustee of the trust account and of the promise.

GLEESON CJ:   Yes, thank you, Mr MacFarlan.  In this matter there will be a grant of special leave to appeal.

MR MACFARLAN:   If the Court pleases.

AT 11.33 AM THE MATTER WAS CONCLUDED