Tailored Projects Pty Ltd v. Jedfire
[2009] QDC 4
•19 January 2009
DISTRICT COURT OF QUEENSLAND
CITATION:
Tailored Projects v Jedfire [2009] QDC 4
PARTIES:
TAILORED PROJECTS PTY LTD (A.C.N. 111 819 722)
(Applicant)
v
JEDFIRE PTY LTD (A.C.N. 050 414 232)
(Respondent)
FILE NO/S:
No. 3538 of 2008
DIVISION:
Civil
PROCEEDING:
Application
ORIGINATING COURT:
Brisbane
DELIVERED ON:
19 January 2009
DELIVERED AT:
Brisbane
HEARING DATE:
12 January 2009
JUDGE:
Searles DCJ
ORDER:
1. DECLARATION THAT APPLICANT IS ENTITLED TO THE $45,539.25 PAID INTO THE SUPREME COURT.
2. THE RESPONDENT TO PAY THE COSTS OF THIS APPLICATION
3. THE RESPONDENT TO PAY THE COSTS OF THE SUPREME COURT APPLICATION OF 11 DECEMBER 2008
CATCHWORDS:
BUILDING CONTRACT - entitlement of proprietor to call up guarantee.
COUNSEL:
M. Fleming – Applicant
N. Ferrett – Respondent
SOLICITORS:
Northside Solicitors – Applicant
Holding Redlich Lawyers – Respondent
This is a matter remitted from the Supreme Court by order of Justice Byrne of 11 December 2008. The application before his Honour was in the nature of an interlocutory injunction seeking to restrain the Respondent from calling up a bank guarantee given by the Applicant in lieu of retention monies under a contract between the parties. However by the day of the application the guarantee monies of $45,539.25 had already been called up. His Honour made an interim order that the Respondent pay the money into court. The Applicant now seeks an order that the money be paid to it.
Contract
By Commercial Building Contract dated 24 August 2007 the Applicant Building Contractor agreed to carry out certain work described in clause 1A of the Schedule to the Contract as renovation and extensions to the Park Ridge Tavern at 3698 Mt Lindsay Highway, Park Ridge, Queensland. The Contract sum was $2,003,727.00.
The Applicant says that the Respondent was not entitled to call up the guarantee because the requisite notice being a pre-condition to entitlement to so draw the funds was not given in breach of clause 15 of the Contract and in breach of s 67J of the Queensland Building Services Authority Act 1991 (Act).
Contract
For present purposes clauses 15 and 24 of the Contract are relevant. Clause 15 provides:
“15 SECURITY
(a)Subject to the Contract, the Proprietor may deduct from any amount due to the Contractor, and retain, the percentage of the amount due stated in the Schedule or 10% of the amount due, whichever is the lesser, until the total amount retained by the Proprietor equals 5% of the GST Exclusive Contract Sum.
(b)The amount retained by the Proprietor under clause 15(a) shall secure the performance of the Contractor’s obligations under the Contract, including the Contractor’s obligations to rectify defects.
(c)In replacement to, or instead of, all or any part of the amount retained, or that could be retained, by the Proprietor under clause 15(a), the Contractor may, at any time, give to the Proprietor one or more bank guarantees, bonds or other valuable securities.
(d)The Proprietor shall release to the Contractor:
(i)All or that part of the amount retained by the Proprietor under clause 15(a) for which the Contractor may give to the Proprietor one or more bank guarantees, bonds, or other valuable securities under clause 15(c) on the giving of the one or more bank guarantees, bonds or other valuable securities to the Proprietor;
(ii)That part of the amount retained by the Proprietor under clause 15(a), or any bank guarantee, bond or other valuable security securing an amount, in excess of 2.5% of the Contract Sum on Practical Completion; and
(iii)The remainder of the amount retained by the Proprietor under clause 15(a), or any bank guarantee, bond or other valuable security given by the Contractor to the Proprietor under clause 15(c) and not released by the Proprietor to the Contractor under clause 15(d)(ii), on the expiration of the Defects Liability Period.
(e)The Proprietor may use, or convert and use, all or any part of the amount retained by the Proprietor under clause 15(a), or any bank guarantee, bond or other valuable security given by the Contractor to the Proprietor under clause 15(c), to obtain an amount due by the Contractor to the Proprietor under the Contract only if the Proprietor gives the Contractor a written notice setting out:
(i)The proposed use; and
(ii)Details the amount due,
within 28 days after the Proprietor becomes aware, or ought reasonably to have become aware, of the Proprietor’s right to obtain the amount due.
(f) ………… ”
Clause 24 provides:
“24. DEFECT LIABILTIY PERIOD
(a)If, after the Works have reached Practical Completion but prior to the expiration of the Defects Liability Period, the Proprietor becomes aware of any defective or incomplete work, the Proprietor shall give the Contractor a written direction:
(i)Setting out full details of the defective or incomplete works;
(ii)Requiring the Contractor to rectify the defective work or complete the incomplete work.
(b)On the giving of a Direction under clause 24(a), the Contractor shall within a reasonable time and at the Contractor’s own cost:
(i)Rectify any part of the Works that is defective; and
(ii)Complete any part of the Works that is incomplete.”
It can be seen then that, in relation to retention funds which we are here dealing with, clause 15 gives to the Applicant Contractor the option of having actual cash entitlements due to it retained up to an amount of 5% of the GST Exclusive Contract Sum or alternatively provide a bank guarantee, bond or other security to secure that amount. That is the course the Applicant took in arranging for its bank Suncorp-Metway Ltd to provide a bank guarantee for $45,539.25.
The object of retention monies is, as stated in clause 15(b), to secure the performance of the Contractor’s obligations under the Contract including obligations to rectify defects. But the fact that the Proprietor has retained the funds in the form of cash or, as here, a bank guarantee, does not entitle the Proprietor to use those funds or to call up the corresponding guarantee other than in accordance with contractual entitlements to do so.
Facts
It is common ground that the defects liability period expired on 11 November 2008.[1] At that expiration the Respondent was obliged under clause 15(d)(iii) to release the guarantee to the Applicant. Of course up to that point the Respondent could use the guarantee to obtain any amount due by the Applicant to it provided proper notice was given under clause 15(e). Any such amount owing could by virtue of clause 15(b), relate to any defects the Applicant was obliged to rectify. It is important to understand however as I have said above, that any entitlement in the Respondent to deal with the guarantee is governed by the Contract. Clause 15(e) sets out a specific notice regime to be complied with to found any entitlement in the Respondent to access the guarantee funds.
[1]Supreme Court transcript, p 13, l 38.
Notice
On the evidence before me the only notice given by the Respondent to the Applicant was given on the last day of the Defects Liability Period, 11 November 2008 under cover of a letter of that date from the Respondent to the Applicant.[2] That was stated to be a notice pursuant to clause 24 detailing defects to be attended to by the Applicant. The notice detailed seven items.
[2]Exhibit A3 to Affidavit G M Boon, 11 December 2008.
By facsimile of 3 December 2008 the Respondent wrote again to the Applicant stating that, as the defects had not been attended to, the Respondent was left with no option but to engage others to undertake the work.[3] By further facsimile of the same date 3 December 2008 the Respondent advised the Applicant that it intended to have recourse to the bank guarantee in the sum of $45,539.25.[4] That letter referred to full particulars having been provided to the Applicant on a number of occasions the most recent of which was 10 November 2008 the day before the clause 24 notice of 11 November 2008. No evidence was put before me of any such particulars provided on 10 November 2008 or any other date.
[3]Exhibit A5 to Affidavit G M Boon, 11 December 2008.
[4]Exhibit A6 to Affidavit G M Boon, 11 December 2008.
The same day 3 December 2008 the Applicant responded by facsimile disputing the Respondent’s entitlement to have recourse to the bank guarantee detailing some work which had been done on the defects and explaining why others had not been attended to. The following day 4 December the Applicant sent full details of the work done to date on defects.[5] The Respondent then proceeded to call up the guarantee.
[5]Exhibits A7 and A8 to Affidavit G M Boon, 11 December 2008.
So far as I can see on the evidence the Respondent gave no notice under clause 15(e) prior to calling up the guarantee. Whilst the 11 November 2008 clause 24 notice appears to be compliant with clause 24, it is not, and does not purport to be, a notice under clause 15(e). That latter clause is quite specific as to its requirements namely that the notice must set out the proposed use of the funds intended to be accessed and the details of the amount due by the Applicant to the Respondent. In the absence of such a notice I am at a loss to find any entitlement in the Respondent to access the guarantee funds as it did. As I have said the retention funds whether in cash or by guarantee or other form of security do not provide to a proprietor in the position of the present Respondent an unbridled entitlement to access the funds at will but rather requires any relevant contractual obligations founding entitlement to be satisfied prior to such access. That simply did not occur in this case.
The Respondent relied upon an affidavit by Mr Sipinkoski, a registered builder who priced the alleged outstanding defect work at $68,750.00 pursuant to an inspection of the works he made on 6 January 2009 but that does not assist the Respondent in the present application because that is the type of detail which is required to be given to the Applicant in a clause 15(e) notice.
On the evidence before me, as at the expiration of the Defects Liability Period on 11 November 2008, unless the Respondent could demonstrate an entitlement to call up the bank guarantee within clause 15, it was obliged to release the guarantee to the Applicant. If, as I have found on the evidence before me, no such entitlement to call up the guarantee existed so as to release the Respondent from its obligation under clause 15(d)(iii) to release the guarantee to the Applicant, then thereafter I consider the Respondent held the guarantee on behalf of, and to the order of, the Applicant with no entitlement to act in the way it did by utilising the guarantee funds to its own use.
The Respondent argued that there were disputes about the validity of the clause 15 notice and that such a contentious matter should not be determined without the benefit of pleading. I do not see it that way. I do not see that there is any dispute about the clause 15 notice. It simply was not given.
The Respondent further argued that there was no express statement in the contract to the effect that the Applicant’s liability for defects ended upon the expiration of the Defects Liability Period and that there were strong bases for concluding that the parties had no intention to excuse liability at law for defects after conclusion of the Defects Liability Period. That may well be so but we are here not dealing with the Applicant’s liability for such defects. Rather we are concerned with whether, assuming such a liability, the Respondent was entitled to utilise the guarantee to meet that liability. They are disparate issues which becomes clear when one considers the nature of the retention monies or, as we have here, the guarantee in lieu. They do not establish a liability but rather, in appropriate circumstances, provide a source of funds to meet losses flowing from that liability. But, as I have already said, access to those funds is not an unfettered right in the Respondent but is governed by the contractual provisions. There is nothing in the contract that I can see which would affect the Respondent’s right to pursue the Applicant for any defects liability just because the guarantee is no longer available to meet any end award. That of course again depends on the contractual provisions and the Respondent’s compliance with the necessary provisions governing such a claim. I have not considered those provisions because it is unnecessary to do so.
The Respondent then argued that enforcement of clause 15(d)(iii) requiring the release of the guarantee at the expiration of the Defects Liability Period would defeat the expressed intention of the bank guarantee in clause 15(b) namely to secure the performance of the Contractor’s obligations, inter alia, to rectify defects. I do not agree. The guarantee, properly enforced, is available to secure performance of the Applicant’s obligations to rectify but, as I have said, that is not available at large. It is available during the period specified in the contract. The six month Defect Liability Period allows the Respondent to identify defects, to call upon the Applicant to rectify them or to have them rectified if the Applicant fails to do so within a reasonable time. Provided the guarantee is still on foot, the cost of such rectification would be a liability caught and covered by the funds secured by the guarantee. But the contract is quite clear as to the life of the guarantee and it is incumbent upon the Respondent to act promptly and within the contractual timeframes in relation to defects if it wishes to take advantage of the guarantee. Here there is no evidence that it did so act sufficient to attract the benefit of the guarantee.
The Respondent next referred to clause 24 dealing with defects and said that its only right during the defect liability period was to require the Applicant to remedy any defect, in that no money claim could arise in relation to defects during that period. From there it argued that the guarantee would only have value as a security for the remedy of defects if it was available at the point at which the Respondent was entitled to a make a money claim in respect of defects. Whether or not a formal claim can be made during that period, the fact remains that the Respondent is able to take steps during the six month defect liability period to have any defects costed and remedied if the Applicant, upon proper notice under clause 24, fails to fulfil its obligations. Any cost incurred by the Respondent in that exercise I would have thought are of the type contemplated by clause 15 so as to entitle the Respondent to draw down the guarantee provided the guarantee is still on foot and the appropriate clause 15 notice has been given .There is no need for me to determine that. It is not correct to say, as the Respondent argued, that the guarantee is only to be returned at the end of the defects liability period if the Respondent had not given notice that there were defects requiring remedy. (a clause 24 notice). That notice does not impact at all on the question of the release of the guarantee which is governed by a notice under clause 15 which, as I have held, was not given.
The Applicant also relied upon s 67J of the Building Services Authority Act 1991 which provides:
“67J SET-OFFS UNDER BUILDING CONTRACTS
(i)The contracting party for a building contract may use a security or retention amount, in whole or in part, to obtain an amount owed under the contract, only if the contracting party has given notice in writing to the contracted party advising of the proposed use and of the amount owed.
(ii)The notice must be given within 28 days after the contracting party becomes aware, or ought reasonably to have become aware, of the contracting party’s rights to obtain the amount owed.
(iii)If, because of sub-sections (i) and (ii), the contracting party is stopped from using a security or retention amount, the contracting party for the contract is not stopped from recovering the amount owed in another way.
(iv)This section does not apply if, under the contract -
(a)Work has been taken out of the hands of the contracted party or the contract has been terminated; or
(b)The Security or retention amount is to be used to make a payment into court to satisfy a notice of claim of charge under the sub-contract of Charges Act 1974.
(v) In this section:
Amount owed, under a building contract means an amount that, under the contract, is a debt due from the contracted party for the contract to the contracting party for the contract because of the circumstances associated with the contracted party’s performance of the contract.
Use of security or retention amount includes the act of converting securities into cash where the securities are held as negotiable instruments.”
Under the Act the Applicant is the contracted party and the Respondent is the contracting party. It can be seen that a similar notice is required under that Act as is required under clause 15 of the Contract, as with clause 15(e) the Respondent is entitled to access the guarantee monies only if the requisite notice has been given. For the same reasons I have outlined above no such notice was given under the Act.
Given the above I am of the opinion that the Respondent wrongly, and in breach of contract, called up the guarantee and has no entitlement to the funds thereby received and which presently are in the Supreme Court. I am mindful that the relief I propose is final relief but I do not see that there are any factual issues necessary to arrive at the findings I have on the evidence placed before me. I declare that the Applicant is entitled to those monies. The Respondent should pay the costs of this application. As to the costs of the Supreme Court application of 11 December 2008, as no costs order was made by Byrne J, the Respondent should also pay the Applicant’s costs of that application in accordance with UCPR 688.
The Applicant sought an order for a lump sum payment of $14,000.00 for costs but given the absence of any evidence to support the reasonableness or otherwise of that sum, I am unable to make an order specifying any fixed amount for costs. They will have to be assessed.
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