Uber Builders and Developers Pty Ltd v MIFA Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2020 00114

UBER BUILDERS AND DEVELOPERS PTY LTD (ACN 606 020 151) trading as Uber Constructions	Plaintiff
v
MIFA PTY LTD (ACN 136 568 708)	Defendant

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JUDGE:	NICHOLS J
WHERE HELD:	Melbourne
DATES OF HEARING:	18 March 2020; further written submissions 6, 29 May 2020; further written submissions 10, 15 September 2020
DATE OF JUDGMENT:	18 September 2020
CASE MAY BE CITED AS:	Uber Builders and Developers Pty Ltd v MIFA Pty Ltd
MEDIUM NEUTRAL CITATION:	[2020] VSC 596

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CONTRACTS – Injunctive relief – Performance securities – Contractual risk allocation mechanism – Disputed agreement regarding ability to call on performance securities for delay damages – Disputed agreement regarding ability to call on performance securities for variations – Whether calling upon performance security is unconscionable – Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd (2015) 31 BCL 407 – Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318 – Re Concrete Constructions Group Pty Ltd [1997] 1 Qd R 6 – Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380 – Boral Formwork & Scaffolding Pty Ltd v Action Makers Limited (2003) 1 BFRA 34 – Australian Standard General Conditions of Contract for Design and Construct AS4300-1995.

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PRACTICE AND PROCEDURE – Injunctive relief – Building contract – Application to restrain principal from call on bank guarantees – Serious issue to be tried – Consideration of whether appropriate to decide contract interpretation question as if on a final basis – Proper approach – Balance of convenience – Application for injunction dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms J R Anthony-Shaw	Nicholas William Albon
For the Defendant	Mr N A Andreou	KCL Law

HER HONOUR:

Introduction

The plaintiff, Uber, seeks orders restraining the defendant, MIFA, from calling upon bank guarantees issued in its favour pursuant to a contract dated May 2017 between MIFA as developer-principal and Uber as contractor-builder, for the construction of an apartment complex in Breese Street, Brunswick (the Contract).

Uber issued this proceeding in January 2020 seeking interlocutory injunctive relief. Upon Uber providing an undertaking as to damages,[1] an interim order was made requiring MIFA to withdraw its demands for payment pending the determination of Uber’s application for an injunction.[2] The parties subsequently engaged in ultimately unsuccessful attempts at resolution of the dispute before the matter returned for determination.
[1]Orders dated 13 January 2020; 3 February 2020; 19 February 2020.
[2]Orders dated 13 January 2020.

MIFA contends that the security is intended to allocate risk between the parties pending a final determination of their rights, and that it is entitled to have recourse to it because an amount due and payable to MIFA under the Contract remains unpaid, and MIFA has given notice of its intention to call on the guarantee.

MIFA claims an entitlement to call on the security on the ground that Uber failed to pay, within time, an amount said to have been certified under the Contract as due and payable to it, including in respect of alleged defective works, variations and liquidated damages for delay in reaching practical completion.

Uber contests MIFA’s entitlement to the claimed moneys and contends that, on the proper construction of the Contract, the provision of security was not intended to allocate risk pending a final determination of the parties’ rights. It says that there are serious questions to be tried in relation to the parties’ underlying rights. It contests that any amount is properly due and payable to MIFA and says MIFA’s attempted call on the guarantees is in bad faith.

For the reasons that appear below, I accept MIFA’s submission that by the Contract the parties agreed that the provision of security was intended to allocate risk on an interim basis pending a final determination of the parties’ rights, and that in the circumstances refusal of Uber’s application for an injunction carries the lowest risk of injustice.

Factual Background

In May 2017 the parties entered into the Contract, the terms of which are discussed below, and a related deed between themselves and MIFA’s lender, the National Australia Bank (NAB). As required by the Contract, Uber provided security in the form of two bank guarantees in favour of MIFA, each in the sum of $82,250.[3]
[3]Every monetary sum referred to in this judgment is exclusive of GST, unless otherwise specified.

Between March and June 2019 the parties were in dispute over the payment of progress claims. For reasons that are later developed, some of the events connected with that dispute are relevant to Uber’s present application.

Uber’s progress claim No. 19 dated 25 February 2019 was not paid by the due date for payment. On 26 March 2019 Uber issued a notice to suspend works for non-payment of that claim. On 4 April 2019 Uber was locked out of the site. On 16 April 2019 and 19 May 2019 respectively MIFA was ordered to pay an adjudicated amount under the Building and Construction Industry Security of Payment Act 2002 (Vic) (the SOPA) and a judgment order was issued in respect of that claim, for $313,925.60. On 20 May 2019 MIFA was required to pay an adjudicated amount for progress claim 20 in the sum of $10,352.36. MIFA made payment of those amounts on 30 May 2019. Uber remobilised the site in early June 2019.

In March 2019 the parties discussed the progress of works and their respective responsibilities for completing the project. Uber contends that at a meeting between representatives of Uber, MIFA and NAB held on 14 March 2019, an agreement was reached concerning the assessment and payment of contractual variations, to the effect that all variations approved by the Superintendent as at that date would not be reversed or re-assessed.

On 20 March 2019 the Quantity Surveyor appointed under the Contract issued progress certificate 14, by which a number of variations that had earlier been approved and paid, were assessed at zero value, effectively resulting in a credit to MIFA. That progress claim is considered below.

Uber also says that by emails exchanged in May 2019 MIFA agreed with Uber that it would not charge liquidated damages in respect of the project. That issue is also considered below.

The parties disagree as to the date for practical completion and as to whether it has in fact been reached. Uber says the works under the Contract have been completed and were completed within time and that MIFA ought to have, but has not, certified for practical completion. MIFA says that Uber did not reach practical completion in time and its works remain defective and incomplete.

On 14 June 2019 an occupancy permit was issued for the site. On 1 July 2019 Uber requested the release of the first bank guarantee, the time for which is governed by clause 5.8 of the Contract. MIFA did not release or return the guarantee.

In July 2019 Uber issued proceedings in the Magistrates Court seeking return of the first guarantee, on grounds including that practical completion was achieved and that MIFA had no contractual right to retain the guarantee. In its defence filed in September 2019 MIFA alleged that the contracted works were substantially defective or incomplete, and that practical completion had not been reached. The proceedings are continuing.

Uber issued its progress claim No. 25, on 25 November 2019, in the sum of $16,666.38.

On 9 December 2019 MIFA issued a payment schedule in response to progress claim No. 25 (the December Payment Schedule). The Schedule, and the subsequent show- cause notice, form the basis of MIFA’s attempted recourse to the security which is in issue on this application.

As discussed below, the Contract established a regime for the making of payment claims and certification by the Superintendent, of amounts payable from one party to the other. The Contract provided that a payment claim submitted to the Superintendent was received by the Superintendent as agent for the Principal, that any payment certificate given under the Contract was taken to be a payment schedule under the SOPA and unless notified to Uber, the Superintendent would give all payment certificates and carry out all other functions of the principal under the SOPA as agent of the principal.[4] The parties agreed that MIFA’s sole director, Michael Hristovski, was to be the Superintendent.
[4]Contract, cl 42A.

The assessed amount in respect of the payment claim was negative $192,053.46 (that is, a sum owed by Uber to MIFA). The Schedule stated, “pursuant to clause 42.1 of the Contract, Uber must pay to MIFA the Scheduled Amount (namely the sum of $192,053.46 including GST) by 23 December 2019, being 28 days from the date the Superintendent received the Payment Claim”.

Under the heading, “reasons for withholding payment”, the Schedule stated that the payment claim was invalid under the SOPA and that, separately, the claimed amount ought be reduced by $208,719.84, which was the sum said to be owed by Uber to MIFA, comprising:

(a) $26,648.10 in respect of rectification costs for defective or incomplete works;

(b) $121,952.74 in respect of “purported variations”. The variations claim concerned works said to have been performed by Uber but which were not claimable or authorised variations to the Contract, for which amounts claimed by Uber are disputed or works which were defective or incomplete;

(c) $56,619 in respect of liquidated damages;

(d) $3,500 for a “credit allowance” for the supply of tiles (a prime cost item) by MIFA.

Uber disputes the claimed entitlements in respect of rectification costs, variations and liquidated damages. Their relevance to this application is explained below.

The scheduled amount was not paid by 23 December. As it happened, Uber did not initiate the process available to it under the SOPA in respect of the December Payment Schedule. It was not, of course, bound to do so.

On 24 December 2019 MIFA issued a Notice to Show Cause under cl 30.03 of the Contract, which alleged substantial breaches by Uber including failure to pay the scheduled amount; failure to perform work at the Superintendent’s direction and failure to proceed with due expedition. The notice directed that Uber must show cause why MIFA should not exercise a right referred to in cl 44.4, by 4 January 2020.

The show cause notice was accompanied by a letter, also dated 24 December 2019, by which MIFA gave notice of its intention to have recourse to the security unless the moneys claimed were paid by 1 January 2020.

On 10 January 2020 Uber received notice from the NAB advising it that MIFA was attempting call on the first guarantee. Uber issued this proceeding seeking to restrain MIFA. Uber provided an undertaking as to damages in respect of this proceeding, on the basis of which MIFA was ordered, subject to further order, to withdraw its demand for payment on the guarantees pending the determination of this proceeding.[5] The parties then negotiated for some time, ultimately unsuccessfully, before the matter returned for determination.
[5]Orders of the Honourable Justice Emerton dated 13 January 2020.

Governing Principles

The principles governing applications of this kind – where interlocutory relief is sought to restrain the beneficiary from calling on a performance bond given under a contract – are well established, and are as follows:

(a) In order to establish an entitlement to interlocutory relief an applicant must show that there is a serious question to be tried. The applicant must make out a prime facie case in the sense of demonstrating that there is a sufficient likelihood of success at trial to justify the preservation of the status quo pending the determination of the parties’ rights at trial, in the circumstances. How strong the probability needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the relief sought.[6]
[6] ABC v O’Neill (2006) 227 CLR 57, 68 [19], 82 [65] (O’Neill).

(b) The applicant must also establish that the balance of convenience favours the granting of an injunction. The court should take whichever course appears to carry the lowest risk of injustice, should it turn out to have been wrong in the sense of granting an injunction to a party who fails to establish its right at trial or failing to grant an injunction to a party who succeeds at trial.[7]
[7]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 73 [35].

(c) Incorporated within the consideration of “balance of convenience” or sometimes considered as a separate matter, is the question whether damages would be an inadequate remedy, meaning that unless the injunction is granted the applicant will suffer irreparable injury for which damages will not be adequate compensation.[8]
[8]Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, 153.

(d) Those questions are not to be considered in isolation from one another, but must be considered together. In considering where the lower risk of injustice lies all relevant factors are to be weighed in the balance. The strength of the applicant’s case and their chances of success may be a relevant matter when assessing the balance of convenience.[9]
[9]O’Neill at 82 [65]; Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd [2007] VSC 200, [48].

(e) In cases of this kind these principles are applied in a particular way.

(f) As Callaway JA explained in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd (Fletcher Construction), a beneficiary may, broadly speaking, stipulate for a guarantee for two reasons. One is to provide security against the risk that the beneficiary will not recover from the defaulting party. The second is, “to allocate the risk as to who shall be out of pocket pending resolution of a dispute. The beneficiary is then able to call upon the guarantee even if it turns out, in the end, that the other party was not in default.”[10] The intended purpose is determined by construing the underlying contract.
[10]Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 (Fletcher Construction), 826-7 (Callaway JA); Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd (2015) 31 BCL 407 (Sugar), 410 [19]-[20], 426 [123].

(g) Performance bonds such as unconditional bank guarantees are regarded as creating “a type of currency” and as being, “as good as cash”’.[11] A contract stipulating for or incorporating an unconditional guarantee may, depending on its terms, create a “pay now, argue later” regime.[12]
[11]Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 (Simic), 113 [88] (Gageler, Nettle and Gordon JJ).
[12]Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318 (Siemens), [14].

(h) Where a performance bond is intended to allocate risk in this way, the grant of an interlocutory injunction might frustrate the parties’ agreed commercial purpose by preventing use of the agreed mechanism.[13] In Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd (Sugar), the Court of Appeal explained the particular approach to be taken in cases that require a decision whether a party should be enjoined from accessing security prior to a final determination of rights, in these terms:
[13]Sugar, 409-410 [18], 410 [21], 411 [25] (Osborn and Ferguson JJA), 426 [123] (Kaye JA); Siemens [87]; Wood HallLtd v The Pipeline Authority (1979) 141 CLR 443, 457 (Stephen J); Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (2008) 249 ALR 458 (Clough), 477 [76] (French, Jacobson and Graham JJ).

[I]n the first instance in a case such as the present the Court must ask whether the performance bond is intended to allocate risk pending the final determination of the parties’ rights. If [the clause] is intended to operate in part as a risk allocation provision, the failure to resolve its construction until trial renders it effectively nugatory in this respect and defeats its evident commercial purpose. In substance, it deprives the parties of the commercial bargain that they made. The consequence of the grant of an injunction restraining recourse to a performance bond pending trial in these circumstances is that it will in effect amount to final relief in respect of a principal benefit intended to be conveyed by the performance bond. It is well recognised that where an injunction in effect grants final relief that consequence must bear upon the fundamental question of whether the grant or refusal of the injunction carries with it the lower risk of injustice.[14]
[14]Sugar, 411 [29] (Osborn and Ferguson JJA).
…
Whilst it may be accepted that the usual principles governing interlocutory injunctions fell to be applied in the present case, it must also be accepted that they fell to be applied in respect of an unusual form of contract, if it be the case that the commercial purpose of the performance bond was to allocate risk pending final determination of the dispute. Such a contractual provision fundamentally alters the context in which the Court must exercise its discretion by changing the complexion of the status quo and raising the prospect of substantial injustice if the purpose of the provision is defeated. That is, the status quo in such circumstances becomes what the parties have agreed as to which of them should bear the financial risk pending final determination, not the continuation of where that risk would naturally fall in the absence of a performance bond to call upon.[15]
[15]Sugar, 412 [31] (Osborn and Ferguson JJA).

(i) The frustration of a risk allocation regime agreed between the parties is a prospect about which courts considering applications to restrain reliance on performance bonds must be vigilant.[16]
[16]Siemens, [121].

(j) The first requirement then, is to construe the Contract to determine whether the parties intended by stipulating for security, to create an interim risk allocation mechanism. It is permissible to have regard to the terms of the performance guarantee where they are stipulated by the contract or where the guarantee is itself contained in the contract.[17] Indeed, the terms of the guarantee may be important in discerning contractual intent.[18]
[17]Sugar, 411 [27] (Osborn and Ferguson JJ), quoting Clough at 480 [85]; Dedert Corporation v United Dalby Bio-Refinery Pty Ltd (2017) 59 VR 607, 644 [145] (Kaye JA).
[18]See eg, Fletcher Construction, 829; Bachmann Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420, 428-9 [26]-[27] (Brooking JA).

(k) That question of construction should be decided on an as-if final basis if the factual matrix before the court permits. As the Court of Appeal said in Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd (“Siemens”):

the general approach explained in Sugar … points towards the desirability of finally determining the question of construction … [h]owever … there is no absolute rule governing these cases … In particular, it is well recognised that a court may decide not to proceed to a final determination of a question of construction, notwithstanding the above considerations, if it does not have the benefit of evidence necessary for that purpose.[19]
[19]Siemens, [94], citing Sugar at 414 [44] and 414-5 [49] (Osborn and Ferguson JJA).

(l) If the security was intended to allocate risk pending a final determination of rights there is a further question, namely, whether there is any relevant qualification or prohibition affecting the beneficiary’s ability to call on the security – that is, a contractual promise not to call on the security unless certain conditions are satisfied. Notwithstanding that the obligations of an issuing bank are not to be read as qualified by reference to the terms of the underlying contract, a beneficiary may be restrained from calling on a bond in breach of a contractual promise not to do so absent particular conditions.[20]

[20]Sugar, 410 [22] (Osborn and Ferguson JJA); Fletcher Construction, 821 (Charles JA); Simic, 90-1 [6], 91-2 [8] (French CJ).

(m) That question too, is one of construction. In determining whether the underlying contract confers an unfettered right to call upon the performance guarantee, the importance of such instruments in the construction industry both nationally and internationally is a factor which bears upon the question of construction of the contract.[21] Where the contract does impose a condition on the right to access the security, the party seeking to restrain recourse must establish the existence of a serious question to tried as to whether the beneficiary has in fact met the contractual requirements.[22]

(n) Even when there is no contractual condition or fetter on a beneficiary’s right to call on security, courts will enjoin a party in whose favour the performance guarantee has been given from acting fraudulently or unconscionably in calling on the security. Some principles relevant to unconscionability are discussed below.

(o) Absent those considerations, the beneficiary of a performance guarantee intended to operate as a risk allocation device will be entitled to call upon the guarantee even if it turns out, ultimately, that the other party was not in default[23] and notwithstanding the existence of a genuine dispute and a serious issue to be tried as to its underlying entitlement.[24]

[21]Clough, 479-80 [81]-[82].

[22]Sugar, 428-9 [138]-[142] (Kaye JA); Fletcher Construction, 823 (Charles JA).

[23]Fletcher Construction, 827 (Callaway JA); Clough, 479 [80].

[24]This is implicit in the quote from Fletcher Construction set out at [26(f)] above.

Parties’ Submissions

In summary, Uber advanced these contentions:

(a) The Contract was not intended to allocate risk as to who would be out of pocket pending a final determination of rights. Recourse to the guarantees is only permitted where an amount has been determined to be “properly due and payable” to MIFA.

(b) MIFA is not entitled to access security relying on its claimed entitlements in respect of variations. Almost all of the disputed variations had been previously assessed, certified and paid by MIFA. By the December Payment Schedule MIFA was in effect re-assessing or “reversing” the earlier certifications and payments. That occurred notwithstanding that MIFA had agreed with Uber at a meeting held in March 2019 that it would not re-assess or reverse claims for variations. It therefore had no contractual entitlement to the moneys claimed in respect of variations that had been previously certified. Alternatively, if there were no concluded agreement, MIFA’s statement or assent to the proposition that it would not re-assess variation claims induced in Uber an assumption to that effect, such that it would be unconscionable for MIFA to depart from the assumed state of affairs and MIFA is estopped from accessing the security on this basis. Separately, a claim made in that way does not comply with the contractual requirements for claims certification. The claimed amounts were accordingly not due and payable within the meaning of the Contract and did not found an entitlement to access the security.

(c) MIFA is not entitled to access security relying on its claimed entitlement to liquidated damages for delay in reaching practical completion. Uber’s primary submission was that the parties had departed from the written Contract which provided for time-related damages, by exchange of email and text messages in May 2019, by which MIFA agreed with Uber that it would not charge any liquidated damages in respect of the project. Alternatively, if there were no concluded agreement, MIFA’s statement to the effect that it would not claim liquidated damages induced in Uber an assumption to that effect, such that it would be unconscionable for MIFA to depart from the assumed state of affairs and charge liquidated damages, and MIFA is estopped from claiming liquidated damages or accessing the guarantee in reliance on a claim to liquidated damages. Uber also submitted that no claim could be made in respect of liquidated damages because they were an “excluded amount” under the SOPA.

(d) MIFA is not entitled to access security relying on its claimed entitlement to rectification and completion costs for alleged defective works because it has not complied with the contractual processes governing the management of defective works and resulting costs.

(e) Further, MIFA is not entitled to access security relying on its claimed entitlement for rectification and completion costs with respect to works that the parties had agreed were to be excluded from Uber’s scope of works under the Contract.

(f) MIFA’s conduct in seeking to call on the guarantees was in bad faith and unconscionable in the circumstances, in particular where its claim to security rested on asserted entitlements to liquidated damages, variations and works that had been the subject of agreements and representations from which it was in effect seeking to resile.

(g) The balance of convenience favours the status quo, which on Uber’s submission was “leaving the guarantees where they are”.

MIFA submitted, in summary that:

(a) by the Contract the parties intended that the purpose of the provision of security was to allocate risk on an interim basis pending a final determination of the dispute between the parties;

(b) the Superintendent was entitled, under the Contract, to assess and value the work claimed by Uber via the issue of payment certificates. MIFA’s recourse to security is not, in itself, determinative of the party’s rights under the Contract on a final basis. On this application, the Court should not ‘re-open’ the Superintendent’s determination;

(c) MIFA sought to have recourse to the security in accordance with the contractual mechanism. The amounts claimed by the December Payment Schedule were due and payable within the meaning of the Contract and remained unpaid; the requisite notice had been given and time elapsed; there was accordingly no serious question that MIFA was not entitled to have recourse to the security;

(d) The balance of convenience favoured a refusal of an injunction, particularly in light of purpose of the security under the Contract as a mechanism for risk allocation pending a final determination of the parties’ rights.

All witnesses gave evidence by affidavit and no witness was cross-examined.

Is the performance security intended to allocate risk on an interim basis?
Basis on which the Contract is construed

As observed earlier, a court must, on an application of this kind, decide whether the fundamental question of construction of the contract can be decided on an as-if final basis, and that question should be so decided if the factual matrix before the court permits.

MIFA submitted that the contractual variations and estoppels for which Uber contended could not be decided on a final basis; so much was obvious from the absence of pleadings and discovery at this stage in the dispute, and furthermore, Uber’s evidence would need to be tested by cross-examination in a final hearing. MIFA said that accordingly, the Contract must be construed on an interim basis. It accepted that as a result (and subject to the considerations informing the balance of convenience), Uber need only establish a serious question to be tried, that the parties did not intend to create an interim risk allocation regime.

I have considered whether, despite MIFA’s submission, I can finally construe the Contract. I have concluded that the incomplete state of the evidence (which is considered below) is too great an impediment to my doing so.

Uber’s submissions did not assist in this regard. Uber submitted, when pressed on the threshold question, that the Contract could be construed on a final basis because there was in effect, no factual contest in relation to the communications by which Uber contended the parties had agreed to vary the Contract. Uber said that only its evidence, and not MIFA’s evidence, engaged with the issue and there was accordingly, no factual dispute. For the reasons discussed below, I do not accept that contention.

Uber’s submissions were lacking clarity on the question of the significance of the contractual variations for which Uber contended. The submissions focussed on the parties’ underlying entitlements, and that focus was consistent with Uber’s submissions on the provisions of the written Contract governing recourse to security, which were to the effect that recourse could only be had where an amount was “properly due and payable” (reflecting MIFA’s true entitlement) and remained unpaid after giving notice and elapse of the requisite period of time. The logic of Uber’s submission was that if a claimed entitlement was not “properly due and payable” it could not form the basis of recourse to the security.

Uber did not go on to submit that the contractual variations for which it contended would preclude MIFA’s accessing the performance guarantees in the event that Uber’s construction of the recourse provisions (that recourse required an amount to be “properly due and payable”) was rejected. Uber did, however, submit that at least in part because of the asserted agreements MIFA was acting in bad faith and unconscionably in seeking to access the security.

For the reasons discussed below, I consider that the meaning of the written Contract is clear: that parties intended to create an interim risk allocation mechanism under which recourse may be had to the security notwithstanding live disputes about their underlying entitlements. I am inclined to the view that the asserted variations, properly understood, go to the parties’ underlying entitlements as opposed to the function that the parties intended the security to fulfil. In other words, it appears that the variations do not relevantly purport to alter the position determined by the written Contract in respect of the performance security. However, given the state of the evidence it is not reasonably possible to reach a concluded view about the effect of the asserted variations, which needs to be assessed at trial.

Accordingly, I consider that this application should be decided on an interim basis.

For the reasons discussed below, I do not consider that Uber has established that there is a sufficient likelihood that it will succeed on its construction of the Contract, which was in substance that the parties did not intend to create an interim risk allocation regime by requiring provision of a performance bond, and recourse to the security cannot be had unless there is an amount finally determined to be due and payable to the beneficiary.

The Contract

The written Contract adopted the Australian Standard General Conditions of Contract for Design and Construct AS4300-1995 (incorporating amendment 1), with certain amendments including the incorporation of Uber’s Fee Proposal of 18 May 2017 which itself stipulated numerous special conditions.

On the provision of security, the Contract provides, in substance that:

(a) Security retention and performance undertakings are for the purpose of ensuring the due and proper performance of the contract (clause 5.2).

(b) Security was to be provided by Uber in the form of an unconditional, irrevocable and assignable bank undertaking to pay, capable of being called upon without reference to the consent of Uber (Annexure A, cl 13; Tripartite Deed cl 8; Contract cl 5). In fact, Uber provided security in accordance with the required form in the sum of $81,250 for each guarantee (a total of $162,500). No retention moneys were required.

(c) Upon the issue of the certificate of practical completion the principal’s entitlement to security was to be reduced to 50%. The balance of the security was to be released within 14 days of the final certificate (cll 5.8, 5.9).

Recourse to security is governed by cl 5.6, which provided that –

A party may have recourse to security ... and may convert into money security that does not consist of money where –
(a)the party has become entitled to exercise a right under the Contract in respect of the security…;
(b)the party has given the other party [5 days] notice in writing … of the party’s intention to have recourse to the security…; and
(c)…[5 days] has or have elapsed since the notice was given.

Two provisions of the Contract define a party’s entitlement to exercise a right in respect of security, namely cll 42.8 and 42.9. They are:

42.8Set Offs by the Principal: The Principal may deduct from moneys due to the Contractor any money due from the Contractor to the Principal otherwise than under the Contract and if those moneys are insufficient, the Principal may, subject to cl 5.6, have recourse to retention moneys and, if they are insufficient, then to security under the contract.
42.9Recourse for Unpaid Moneys: Where, within the time provided by the Contract, a party fails to pay the other party an amount due and payable under the Contract, the other party may, subject to Clause 5.6, have recourse to retention moneys, if any, and, if those moneys are insufficient, then to security under the Contract and any deficiency remaining may be recovered by the other party as a debt due and payable.

This dispute does not concern moneys due otherwise than under the Contract. Accordingly, by reference to cll 5.6 and 42.9, MIFA’s entitlement to have recourse to the security was predicated on there being an amount “due and payable” to it under the Contract where Uber had failed to pay within the time provided by the Contract, the service of notice and the elapse of five days. At the commencement of this dispute the question of the service of notice was in issue, but it has since been resolved.

What then, does the Contract require for an amount to be due and payable within a specified time? That is determined by cl 42 (“Certificates and Payments”).

Clause 42.1 (“Payment Claims, Certificates, Calculations and Time for Payment”) (read together with Annexure A to the Contract) provides in substance as follows:

(a) The percentages of the total contract sum and the amounts that are payable are those “[a]s certified by the Superintendent under Clause 42.1”.

(b) Payments are to be made monthly pursuant to a payment certificate issued by the Superintendent under clause 42.1 for each payment claim delivered by the contractor.

(c) The contractor is to submit payment claims on the 25^th day of each month or upon completion of defined stages of work and upon issue of a certificate of practical completion. The contractor is to deliver the Superintendent, claims for payment of the amount due to the Contractor, supported by evidence of the kind specified and such information as the Superintendent may reasonably require.

(d) Claims for payment under cl 42.1 will not be valid unless they include, at a minimum, the information specified in the clause.

(e) By the specified time after receipt of a claim for payment, the Superintendent[25] shall cause the Quantity Surveyor[26] to be instructed to assess the claim and to issue a progress drawdown report in respect of the claim, and the Superintendent shall provide that report to the contractor on receipt.
[25]The Superintendent is the person nominated in Annexure A to the Contract (which in this case was MIFA’s sole director Michael Hristovski) or other person from time to time appointed in writing by the principal and notified to the contractor in writing (clause 2).
[26]The Quantity Surveyor is the quantity surveyor appointed by the principal or its financier (clause 2).

(f) Subject to the provisions of the Contract and to the proviso set out in cl 42.1:

[W]ithin 28 days of receipt by the Superintendent of a claim for payment and within 14 days of the issue of a Final Certificate, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in such certificate as due to the Contractor or to the Principal, as the case may be. (emphasis added)

(g)The proviso is that:
A payment made pursuant to this Clause 42.1 shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Principal or the Contractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.
Payment of moneys shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only, except as provided under Clause 42.6. (emphasis added)

(h) It is apparent from cl 42.1 that the expression “payment certificate” means the certificate authorising payment as issued by the Superintendent, certifying the amount for payment. In accordance with cl 42A payment claims submitted to the Superintendent under cl 42 were taken to be received by the Superintendent as agent for the principal; payment certificates given under the Contract were taken to be payment schedules under the SOPA; “reference dates” contemplated by that Act were those prescribed in clauses 42.1 and 42.5 (with stated exceptions), and the Superintendent in performing functions in connection with payment claims was said to be the agent of the Principal for the purposes of the SOPA.

(i)Clause 47 (“Dispute Resolution”) concerns disputes arising between the contractor and the principal in connection with the Contract or its subject matter, including disputes concerning claims under tort or statute. It provides for the service of notice of a dispute, negotiation between directors of the principal and the contractor, mediation and stipulates that,
[n]othing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief in respect of a dispute under Clause 47 or any matter arising under the Contract (clause 47.4).

(j) Clause 42.4 provides that,
[t]he issue of a payment certificate or a Certificate of Practical Completion shall not constitute approval of any work or other matter, nor shall it prejudice any claim by the Principal or the Contractor.

(k)The procedure for a final certificate differs from that applicable to an ordinary payment certificate. The contractor is to provide a final payment claim within 28 days of the expiry of the final defects liability period and within 14 days of receipt of that claim the Superintendent must obtain a final progress drawdown report from the Quantity Surveyor (a “final certificate”). The Quantity Surveyor is to certify the amount which, in his or her opinion, is finally due from the principal to the contractor or from the contractor to the principal arising out of the Contract “or any alleged breach thereof” with allowances as defined. Unlike an ordinary payment certificate the final certificate is to be evidence that the works have been completed in accordance with the terms of the Contract (with specified exceptions), unless either party issues a notice of dispute under clause 47 within the time stipulated and within 14 days after the issue of a final certificate the principal shall release to the contractor any security then held by the principal (clauses 42.5 and 42.6). In that way, unlike a progress payment which was to be treated as a payment on account only, the payment required by the final certificate, unless challenged in the specified way, provides for the certified amount to finally payable.

The obligation to pay on a payment certificate is found in the words, “the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in such certificate as due to the Contractor or to the Principal, as the case may be” (cl 42.1, at p 49) which reflects the introductory words to cl 42.1 that, “… the percentages of the Contract Sum and amounts payable are as follows: … as certified by the Superintendent under clause 42.1”. The time for payment is determined by the requirement that payment must be made within 28 days of receipt by the Superintendent of a claim for payment (and within 14 days of the issue of a final certificate with a provision for a seven day extension in the circumstance defined). The clause therefore imposes both an obligation to pay, namely to pay not less than the amount certified, and time for payment. In this way, moneys become due and payable under the Contract.

Several provisions of the Contract specify that one party will be required to pay the other in respect of particular works or costs incurred or will be indebted to the other on the occurrence of specified events.[27] Clause 42 alone specifies a mechanism for payment which mandates payment within a designated time.
[27]For example, cll 11, 15, 30.3, 31.7, 35.6, 36, 38.

The above-mentioned provisions make clear that the payment regime (save in respect of final certificate for which specific provision is made), is an interim one in the sense that an obligation to pay arises on the issue of a payment certificate, but the rights of either party to contend that the amount paid under a certificate is the amount properly due and payable and to be paid accordingly are expressly preserved.

Uber submitted that the expression “due and payable” in cl 42.9 means amounts “properly due and payable”, which amounts are to be distinguished from those that a party shall be paid on certification. What is properly due and payable is to be determined by any of the mechanisms contemplated by clause 47 (agreement, mediation or court determination). Further and relatedly, an amount cannot be properly due and payable unless the principal has complied with the contractual mechanisms giving rise to the underlying entitlement. Where, for example, an amount is claimed in respect of defective work, it cannot be properly due and payable unless the work has been valued as specified by clauses 30 and 40. In this way, Uber contended that it is not sufficient to look to a certificate to determine whether an amount is due and payable within the meaning of cl 42.9. Rather, one must determine whether the underlying entitlement is properly due, by reference to all of the contractual provisions governing the entitlement.

I reject that submission. It fails to engage with the plain language of cl 42.9.

The expressions, “due and payable” and separately each of “due” and “payable”, are not legal terms of art; their meaning is not fixed but is strongly informed by their context.[28] Although cl 42.1 does not use the expression, “due and payable”, it provides a mechanism by which amounts become due and payable, in the manner discussed. Clause 42.1 provides that by the certification process one party “shall pay” the other the amount certified, by the time specified.
[28]See for example, Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] 2 Qd R 521, 526-7 (McPherson JA).

Although each contract must be construed on its own terms, it is instructive that successive courts have construed relevantly similar provisions as imposing an obligation to pay notwithstanding the provisional nature of the certification and payment regime imposed by a clause of this kind. In Re Concrete Constructions Group[29] the Queensland Court of Appeal considered Australian Standard General Conditions of Contract AS 2124-1992. That contract provided that the superintendent shall issue to the principal and the contractor a certificate stating the amount of payment which in the superintendent’s opinion was to be made by one party to the other. The obligation to pay was expressed in terms materially the same as those in issue in this case. It provided,

Subject to the provisions of the Contract, … within 14 days of issue by the Superintendent of the Superintendent’s payment certificate, … the Principal shall pay to the Contractor or the Contractor shall pay to the Principal as the case may be, an amount not less than the amount shown in the Certificate as due to the Contractor or to the Principal as the case may be … A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Principal or Contractor as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.[30]

[29]Re Concrete Constructions Group Pty Ltd [1997] 1 Qd R 6 (Re Concrete Constructions Group).

[30]Re Concrete Constructions Group, 10-11.

In that context, the Court said, of such a certification and payment regime,

Such claims and payments are, in building contracts in the common form, always intended to be provisional only...That is to say, they await the day when a final certificate issues, in which the ultimate indebtedness by one party to the other is ascertained and fixed. Before that stage is reached, it is generally correct to say that no payment is capable of finally determining the rights of the parties with respect to matters in dispute between them. So much is expressly recognised in this instance by cl. 42.1, providing as it does at the end of the fourth paragraph of that clause that a payment made pursuant to it does not prejudice the right of either party under cl. 47 to dispute whether the amount so paid is the amount properly due and payable. If the dispute is determined under cl. 47, a liability then attaches to one party or the other to pay the difference between the amount already paid and the amount that was properly due and payable.[31]

[31]Re Concrete Constructions Group, 12.

In Daysea v Watpac a differently constituted Queensland Court of Appeal considering a construction contract in the form of amended AS 4300-1995, in which the obligation to pay on a certificate was expressed in the same terms as the contract considered in Re Concrete Constructions Group, said in relation to provisions of this kind, that:

… the consequences of issuing a certificate are serious. The proprietor is bound to pay the amount of the certificate notwithstanding that the amount is provisional only and subsequently may be found to be incorrect. Notwithstanding such considerations the proprietor must pay the amount specified in the certificate and take the chance that any excess can be recovered subsequently. Similarly, the contractor is not entitled to payment of anything more than the amount specified in the certificate though it may well be less than the progress claim made. Even though it may ultimately be found that the contractor was entitled to more, the recovery of any such amount must await determination of disputes at the end of the contract.[32]

[32]Daysea Pty Ltd v Watpac Australia Pty Ltd (2001) 17 BCL 434 (Daysea), 439 [21] (Williams JA, Davies JA and Mackenzie J agreeing). In Kane Constructions Pty Ltd v Sopov (2006) 22 BCL 92, Warren CJ did not follow the reasoning of Williams JA in Daysea in respect of whether the validity of payment certificates depended upon strict compliance with contractual specifications (at [738]-[772] as upheld by the Court of Appeal in Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 (Sopov)). The reasoning in that decision as to the need for “strict compliance” does not affect the correctness of the passage from Daysea cited here.

In the present context it is similarly clear from the terms of the Contract that an amount certified is an amount due and payable because it is the subject of a present payment obligation, despite the fact that that sum may be required to be paid back at a later time.

Furthermore, cl 42.9 does not employ the expression, “properly due and payable”. It is not sensible to read the expression, “due and payable” in cl 42.9 as an intended reference to an amount “properly due and payable” when it is clear from cl 42.1 that “properly” has particular work to do within c 42.1, in connoting an amount that is finally due and not just due on account. A sensible, objective construction of cl 42.9 is that the use of the expression “due and payable”, in contrast to the expression, “properly due and payable”, is deliberate.

Returning then to the recourse provisions (cl 5.6 read together with cl 42.9), it is clear that recourse to the security is permitted where:

(a) there is an amount due and payable under the Contract. In the context of the Contract as a whole, amounts due and payable are those amounts certified as payable by the Superintendent under cl 42.1, save in respect of those moneys the subject of a final certificate, for which a particular process is provided;

(b) the other party has failed to pay the amount by the due date, which is the date determined under cl 42.1;

(c) notice has been given in accordance with cl 5.6;

(d) 5 days has elapsed in accordance with cl 5.6.

Those requirements are an implied negative stipulation that the beneficiary will not invoke recourse to the security unless an amount is due and payable under the Contract, that amount is unpaid by the due date, and without giving notice and allowing the elapse of time.[33]
[33]See Dedert Corporation v United Dalby Bio-Refinery Pty Ltd (2017) 59 VR 607, 633 [105] in which Kaye JA characterised the recourse provisions, cast in similar terms, as negative contractual stipulations.

Uber submitted in substance that the expression “has become entitled” in cl 5.6 means a “present crystallised entitlement”. That submission relied in part on Uber’s construction of the expression, “due and payable” within cl 42,9, given the relationship between clauses 5.6 and 42.9. That construction is untenable for the reasons discussed. Uber also submitted that a recourse provision that is predicated on an entitlement requires a crystallised liability (by which Uber meant a liability that had been finally determined) which is to be distinguished from a mere asserted claim. That submission overlooks the object of the expression, “has become entitled” in cl 5.6, in the present Contract. Here, the party accessing security must have become entitled to “exercise a right under the contract in respect of the security”. The right arises in the circumstances defined by cl 42.9 which, by reference to cl 42.1, will be satisfied where moneys are certified as payable and remain unpaid, notwithstanding that the other party may contest that they are properly due and payable.

When it is understood that recourse to the security is permitted in this way – that it may be had notwithstanding a dispute that the underlying entitlement does not arise according to the relevant contractual conditions – it becomes clear that the provision of security was intended as an interim risk allocation device which is to determine who is to be out of pocket pending final determination of a dispute between the parties as to their entitlement to payment.

That regime complements the form of the security provided which is unconditional and irrevocable.

Uber submitted that the construction of the Contract resulting in an entitlement in the Principal to access security merely on the non-payment of a certified amount was “commercial nonsense” because that would render ineffectual numerous parts of the Contract which mandate processes such as valuation and directions by the Superintendent (for example, in relation to variations and defects). That submission misunderstood that relationship between the parts of Contract that governed both the parties’ conduct of their relations in the course of the project and also their true entitlements (those that would be finally determined on any dispute), and those parts that facilitated payments on account.

Uber also submitted that it would be ‘commercial nonsense’ to permit access to security merely on the basis of certified amounts. As Uber put it, a commercially sensible construction would not require the contractor to “claw back every single cent owed to it under a contract because of this unfettered certification process”.

As the High Court said in Mount Bruce Mining, “[i]n determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose and objects to be secured by the contract.”[34] Uber’s submission misapprehends both the nature of the certification and payment regime, which allows for payment on account, and the commercial purpose which is served by a regime that allocates risk on an interim basis pending a final determination of rights. At their core, Uber’s submissions railed against the allocation of risk against it that is evident in the language chosen by the parties, when objectively construed.
[34]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (citations omitted).

Claim arising from Variations

Uber contended that MIFA was not entitled to access security relying on its claimed entitlements in respect of variations. The evidence was that almost all of the disputed variations had been previously assessed, certified and paid by MIFA. By issuing the December Payment Schedule MIFA was in effect re-assessing or “reversing” the earlier certifications and payments. Uber submitted that that fact was significant in several respects.

Uber’s case was that:

(a) First, MIFA had agreed with Uber at a meeting held in March 2019 that it would not re-assess or reverse claims for variations. It therefore had no contractual entitlement to the moneys claimed in respect of valuations that had been previously certified. Uber’s articulation of the agreement is considered further below.

(b) Second and alternatively, if there was no concluded agreement, MIFA’s statement or assent to the proposition that it would not re-assess variation claims induced in Uber an assumption to that effect, such that it would be unconscionable for MIFA to depart from the assumed state of affairs and MIFA is estopped from accessing the security on this basis.

(c) Third and separately, a claim made in that way does not comply with the contractual requirements for claims certification. The claimed amounts were accordingly not due and payable within the meaning of the Contract and did not found an entitlement to access the security.

In relation to that part of the December Payment Schedule concerning variations the evidence established the following:

(a) The December 2019 Payment Schedule states that MIFA claims $121,952.74 in respect of “purported variations” as described in the payment claim. Eleven variations are listed. The Schedule then states that the purported variations are not claimable variations under the Act[35] and that MIFA disputes the alleged variations on a number of bases which are generally stated in the Schedule, without particulars. The grounds of dispute are that the works did not constitute variations to the Contract; that Uber is not entitled to a progress payment; that MIFA does not agree with the value of the alleged works; and that the works are defective.
[35]The reference is to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA). Uber, evidently, did not have recourse to the processes under the Act in respect of the particular payments the subject of the December Payment Schedule.

(b) The December Payment Schedule thus sets out “purported variations” that are said to be disputed, in respect of which MIFA claims moneys against Uber. The Schedule does not set out how the purported variations resulted in a monetary claim against Uber, but it was not seriously disputed on this application that the amount was claimed against Uber (and off-set against Uber’s progress claim No. 25) as a result of the Superintendent assessing at zero, items that had previously been assessed at a monetary value and certified and paid to Uber. A re-assessment in this way resulted in a credit in MIFA’s favour.

(c) David Rogalsky, Uber’s director (who had substantial direct personal involvement with the project and conducted many of the relevant dealings with MIFA’s Michael Hristovski) gave evidence that each of the variations identified in December Payment Schedule was requested by MIFA “formal[ly] or informal[ly]”, approved by it, approved for payment by the Quantity Surveyor, certified and paid by MIFA to Uber. Uber adduced evidence comprising correspondence relating to many of the individual variations, some of which appeared to be the subject of a signed approval, and some of which were discussed in correspondence but with no signed approval. It is unnecessary to set out that evidence. The point Uber sought to make was that the variations had been assessed under the contract, and paid. That contention was not disputed.

(d) The evidence of the circumstances surrounding the treatment of variations, which was incomplete, was as follows.

(e) Progress Certificate No. 13 was issued on 14 February 2019. By that certificate a number of variations were approved. As noted, there is no dispute that they were paid. For completeness it will be recalled that during the period late February to late May 2019 the parties were in dispute over progress claims 19 and 20.

(f) Angus Jones, Uber’s construction manager (who was Uber’s primary day to day point of contact between it and MIFA) gave evidence that he attended a meeting on 14 March 2019 with David Rogalsky, Michael Hristovski and three representatives of NAB, at which certain matters were discussed and, he says, agreed. Neither Mr Rogalsky nor Mr Hristovski gave evidence about that meeting. Mr Jones did not say what led to the meeting, although it is clear that particular aspects of the works were at that time the subject of dispute. Mr Jones said —

The items of works which were the subject of disagreement at the NAB meeting were works to do with the installation of electricity meters and works to a disabled toilet in the lobby area. One of the three representatives from NAB (I do not recall whom) said during the meeting that it was these unresolved items that were holding up practical completion and the issue of a certificate of occupancy and that these were required to be resolved.

(g) On the subject of variations his evidence was that he brought with him to the meeting a copy of all signed and approved variation forms and related correspondence, including progress certificate No. 13, and that —

Michael Hristovski did not dispute that he had approved and caused to be paid those variations during the meeting. The variations which were not yet approved at that stage related to items of work which would be taken out of the scope of works and which Uber was to give credits for. These were agreed in principal (sic) but were not yet formalised;

and that —
In relation to variations, it is my clear recollection of the discussions at the meeting that variations already performed by Uber and already paid to Uber were approved and finalised. Any further variations (being the credits), which were not yet approved, were to be dealt with by way of an assessment by Napier Blakely as set out in paragraph 1 of the NAB Meeting summary.

(h) Mr Jones produced a note prepared by Robert Moulden of NAB (who attended the meeting) and dated 18 March 2019. The note set out “a reminder of the agreed action”, as follows:

1. Superintendent to issue instructions to the builder to take the following work out of the building contract: balustrade, shower screens, carpet and Disabled Bathroom in the foyer (only if completion of Bathroom not required for Certificate of Occupancy);
2. Developer to instruct the building surveyor to exclude the balustrade, shower screens, carpet and bathroom in the foyer from the builders warranty. Excluded works to be warrant by Developer direct given works were carried out by Developer, with building surveyor to issue confirmation of same to the builder.;
3. Superintendent to issue CSA (Contract Sum Adjustments) in accordance with building contract for all approved variations. Any variations that are not then approved are to be independently costed by N&B whose assessments are binding on both Developer and Builder;

4. Developer is responsible for and to follow up on connection to the site, noting same has been paid by the developer who is awaiting Gas supplier to complete;
5. Uber to complete EWR form and re-submit, then provide copies of same to the developer for his signature, following which he can contact the power supplier to arrange connection. Developer is responsible for all meter and meter connection;
6. Outstanding GST for past two claims to be paid; and
7. Developer to check with the building surveyor as to exactly what work is required to be completed in the Disabled Bathroom in the foyer in order not to prevent the issuance of the certificate of occupancy. Superintendent is to then decide who is to complete the work, i.e. the developer or the builder. If the later work is to be costed and price agreed, following which works are to be undertaken.

(i) On 14 March 2019, the day of the meeting at NAB, Michael Hristovski sent an email to the Quantity Surveyor. It said, relevantly,

Dear Heidn,
I authorise you to quantify the variations submitted to you by Uber without my authority for payment through funding:
The variations at question are Attached and highlighted for ease: 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22
Our D&C contract executed refers to scope of works and construction intentness. I haven’t been provided any quotes or plans or design from Uber for the variations forwarded to directly to you against my authority to Angus Jones “not to seek payment from my funding ”
Heidn I have never BEEN provided with any correct documentation from Uber to make assessment.
As I have to authorise the payment / position / acceptance from our Nab meeting this morning with Uber,
We have all agreed to instruct you to quantify the position of the variations to clarify all parties concerned.
Variation 11 was excluded from the contract … This variation is not … disputed only want dollar amount justification to authorise payment.
Uber seeking variation of toilet on ground floor
…
Further to:
They dispute to warranty the following 3 items
Internal Balustrade
Carpet
Shower screens
: [sic] which I’m in agreeance to exclude from the construction contract once correct costings are approved and deducted from the contract:
…
Please note that all approved works David consented to and is now retracting. I have no dispute. Just need accounting certified for credit.
…

(j) On 19 March 2019 at 10.31pm, Mr Hristovski again wrote to the Quantity Surveyor stating,

... I confirm acceptance of variations 19, 20 & 22
You are to omit variations 9 to 18 as per my instructions to Uber

(k) On 20 March 2019 at 9.20am, the Quantity Surveyor (Heidn Potgieter) wrote to Mr Hristovksi, copied to NAB and Uber attaching “the amount to be recommended for payment”. The attachment appears to have been in the form of progress certificate 14 which was dated 20 March 2019 and records a negative amount ($181,766) in respect of approved variations. Mr Potgieter’s email said, relevantly,

The claim has been reduced as follows: …
7) Removed variations No’s 9 - 18 as per below. I do understand that these variations need to be fully submitted and reviewed for approval.

The schedule attached to progress certificate 14 records, for variations 9 to 18, “previous expenditure” amounts for each item that correspond with the amounts “submitted”, $0 against each item under the heading “approved” and a negative value in the “exp. this month” column, of the same amount as in the “previous expenditure” column. The net effect appeared to be that previously approved amounts were, by progress claim 14, re-assessed at zero, with a credit accruing to MIFA for the previous expended amount. The earlier approvals appear on progress schedule 13.

(l) The re-assessed amounts appear to correspond substantially but not wholly, with the list of variation items in the December Payment Schedule, for which MIFA claims against Uber. The amount claimed for those items is a single, global figure.

(m) It appears that Michael Hristovski replied to the Quantity Surveyor’s email of 20 March 2019 at 10:37am the same day, copying Uber and the NAB, with the statement, “[c]onfirmed report is correct”. Angus Jones responded, also on 20 March 2019, saying,

The report is not correct. You have removed approved and paid variations! We acknowledged your request to Heidn to re-assess these variations, only. We in no way accepted the omission of these variations, and we made that extremely clear to all parties.
This assessment is not accepted, and outside SOP timing.

(n) Michael Hristovski said in his affidavit, in general terms, that the works performed by Uber were late, defective and incomplete. He made no mention of variations, save in respect that the variations are said in the 9 December Payment Schedule to have been defective. It was sufficiently clear from Mr Hristovski’s evidence that MIFA maintains it was entitled to rely on the amounts certified by the December Payment Schedule.

(o) The subject of variations is also addressed in the parties’ communications of May 2019, discussed above. In the email of 22 May 2019 at 12.05pm Mr Rogalsky states, at item 6, “All variations submitted to date, are approved and not to be reversed or re assessed under any circumstances. Payments of the moneys today confirms this”. There was no response to the email. For the reasons discussed below in the context of the claim concerning liquidated damages, it is not possible to construe the text messages of 26 to 28 May 2019 as evidencing any agreement to any particular part of the 22 May 2019 email.

(p) There was no explanation by any party about what if anything occurred between 20 March 2020 and 9 December 2020 in respect of the disputed variations.

Analysis
Agreement concerning approved variations

Uber’s first contention was that the parties reached an agreement that “all variations approved by the Superintendent as at 14 March 2019 were approved and would not be reversed or re-assessed”.[36]
[36]Uber’s written submissions, [23].

The difficulties that lie in the path of concluding that the parties reached an agreement to the effect articulated by Uber, are as follows:

(a) Angus’ Jones account of the conversations said to constitute the agreement is in conclusionary and general terms.

(b) The note prepared by NAB, on which Mr Jones relied, is relevantly ambiguous. The first sentence of the statement at numbered sub-paragraph 3, might be construed as a reference to variations approved prior to the date of the meeting on 14 March. But equally, it might be construed as a reference to the variations to be approved upon the Superintendent’s review, yet to occur. That reading would be consistent with the subsequent statement that, “[a]ny variations that are not then approved are to be independently costed by N&B[37] whose assessments are binding on both Developer and Builder” (emphasis added). Although the evidence is incomplete, and no concluded view can be formed, that reading may also be consistent with Michael Hristovski’s request of 14 March 2019 to the quantity surveyor, to “quantify” variations submitted earlier to him, which was acknowledged in Angus Jones’ email of 20 March 2019. The immediate context (the NAB note) does not assist in preferring one construction over another.
[37]N&B is a reference to Napier Blakely, the Quantity Surveyor.

(c) As to the broader context, Michael Hristovski’s email of 14 March 2019 to the Quantity Surveyor is incoherent in large part. Mr Hristovski states that he is authorising the Surveyor to quantify variations submitted to him earlier. He appears to be saying that the variations previously submitted to the Surveyor were submitted without correct documentation and without MIFA’s authority (claims that Uber denies). Further, it is said that, “[w]e all agreed to instruct you to quantify the position of the variations to clarify all parties concerned” (emphasis added). The referral to the Surveyor, then, appears to have been purportedly made on behalf of all parties (that is, both MIFA and Uber). Uber produced only the 20 March email of Jones in response. That email states that Hristovski’s “request” to the Surveyor to re-assess variations (which, read in context, means variations 9 – 18 which were previously approved and paid) was “acknowledged” but also that Uber did not accept the “omission” of those variations. It is sufficiently clear that both parties understood that those variations would be referred to the Quantity Surveyor for a re-assessment of some kind, and that Uber knew that MIFA was arranging for that to occur. It is not reasonably possible to construct a coherent account of what was agreed in relation to the scope and purpose of that referral.

(d) Uber’s position as advanced on this application was that it was agreed at the 14 March meeting that all variations approved by the Superintendent as at 14 March 2019 would not be reversed or re-assessed. The substance of that position was put in David Rogalsky’s email of 22 May 2019, and expressed to be one of several conditions that were, at that time (some two months after the 14 March meeting) said by Uber to be required to “move forward”. There was, as discussed below (in the context of liquidated damages), no response to that email, and the text messages of 26-28 May cannot be reasonably construed as an acceptance of the terms there set out.

(e) There was no indication of consideration for the asserted agreement. To the extent that re-mobilisation of the site in early June 2019 was relied on, that contention is addressed below.

(f) The evidence before me was plainly an incomplete account of the dealings between the parties on the subject of variations.

The agreement alleged appears to concern the parties’ underlying entitlements to payment. If established, the effect of such an agreement would be that Uber would retain the payments it had received as final entitlements. If it were expressed in the language of the Contract (although it was not said to have been articulated in these terms) the effect of the agreement would be that the amounts already assessed and paid were to be taken to have been “properly due and payable”. Although Uber’s submissions did not directly deal with the proper characterisation of the asserted agreement, this characterisation, for the purposes of this application, is consistent with Uber’s interpretation of the recourse to security provisions – that recourse required the claimed moneys to be “properly due and payable”.

For the reasons discussed, even if I were to find that there was a serious question that such agreement were made, those findings would not prevent MIFA’s recourse to the security. Recourse to security does not require an amount to be “properly due and payable”.

I have considered whether the agreement for which Uber contends should be properly characterised as a variation to the process set out in cl 42 such that cl 42 should read as though it contained a proviso, that the Superintendent may not certify any amount that has been previously certified or paid. As noted, Uber did not express the asserted agreement in these terms. Having regard to the analysis of the evidence set out earlier, I do not consider that there is a serious question that such an agreement was made, or that a representation to that effect was made.

The evidence reveals a genuine dispute about the parties’ underlying entitlements (the amounts properly due and payable) in respect of variations. But such a dispute does not preclude access to the bank guarantees. More relevantly, the evidence does not establish a sufficient likelihood that Uber will succeed in establishing the existence of an agreement that the Superintendent may not certify any amount that has been previously certified or paid. The language of the communications in evidence is not reasonably capable of supporting such a finding.

It remains open to Uber, when the matter is finally determined, to contend that the amounts claimed in respect of variations are not in fact properly due and payable to MIFA.

Estoppel

Uber’s second contention in relation to variations was that by the statements on which it relied, MIFA had represented that variations approved as at 14 March 2019 were approved and would not be reversed or re-assessed, and induced in Uber an assumption to that effect, from which it would be unconscionable for MIFA to depart, and MIFA is estopped from doing so.

This claim too, goes to the parties’ underlying entitlements, which do not arise for determination on this application. It does, however, on Uber’s case, inform the question whether MIFA was acting unconscionably in seeking to access the performance security (by seeking recourse despite representations that moneys now claimed were not owing).

Noting that context, for the reasons discussed above, the paucity of the evidence that a representation to that effect was made is a real impediment to Uber’s claim. So to, is the absence of evidence that Uber relied on a representation to that effect, to its detriment. Uber did not identify any evidence relevant to detrimental reliance save that said to be relevant to representations discussed in the context of liquidated damages. That evidence is considered below. Having regard to the analysis of the evidence as elsewhere set out, I do not consider that Uber has established, or has shown that there is a sufficient likelihood that it will establish, an estoppel against MIFA in this regard.

The issues of bad faith and unconscionability are discussed further below.

“Reversals” not permitted under the Contract?

Uber contended that the Contract does not permit the Superintendent to re-assess works that have been previously assessed and paid. Uber put its submission on the grounds that MIFA had, through the Superintendent, re-assessed the relevant works without issuing any notice of dispute or any direction to Uber under cl 30 and without conducting any valuation of those works under cl 40, each of which, Uber said, should occur when it was contended that works were defective. In that way, Uber submitted, the contractual processes were bypassed. As Uber put it, the Contract does not confer on the Superintendent a power to “reverse previously approved and paid variations to zero without engaging in the process mandated by the contract as to the valuation of variations”.

That submission too, was intended to show that the moneys claimed in respect of variations were not properly due and payable. For the reasons discussed, whether the amounts certified in the December Payment Schedule were “properly due and payable” is not a question that needs to be resolved before determining whether recourse may be had to the security.

Uber submitted that there was “no contractual power to ‘reverse’ amounts that had already been paid”. MIFA submitted that because the effect of a certificate is to require a payment on account only, characterising as a “reversal” a later certificate that had the effect of adjusting amounts the subject of an earlier certificate, is not to the point. The Superintendent is not bound by earlier certificates. That that is so, is entirely in keeping with the interim nature of the payment regime created by cl 42.1. An accounting occurs at a later point – by the issue of a final certificate under cl 42.6, or in the course of a dispute initiated by a party under cl 47.

I accept MIFA’s submissions.

In the case of Sopov v Kane Constructions[38] in the course of considering a contract in the same form as that in issue in Re Concrete Constructions Group (which is discussed above at [52] to [53]), in which payments were certified and payable on account in the manner as occurs in the present contract, Whelan AJA (as his Honour then was) said of the certification mechanism,

Certificates under cl. 42.1 are only a provisional assessment of liability because the position might be effectively altered by subsequent payment certificates and because the right of the parties to dispute matters under cl 47 is preserved.[39]

[38]Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 (Sopov).

[39]Sopov, 136 [39].

That observation could be made, with equal force, of the Contract between MIFA and Uber.

Claim arising from asserted entitlement to liquidated damages

Uber advanced several contentions in relation to liquidated damages.

The first was that MIFA had no entitlement to liquidated damages because the project had reached practical completion within the relevant date, which was 14 working months from the issue of a final building permit. The date from which damages were to run and the question whether practical completion had occurred was accepted as going to the parties’ underlying entitlements. For the reasons explained above, that is not an issue that arises for determination on the question whether MIFA is entitled to access the guarantee.

The second was that the parties had departed from the written Contract and had agreed that MIFA would not charge liquidated damages in respect of the project. Clause 35.6 of the written Contract, said to have been varied, provided that —

35.6 Liquidated Damages for Delay in Reaching Practical Completion
If the Contractor fails to reach Practical Completion by the date which is 40 Business Days after the Date for Practical Completion (LD Date), the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in Annexure Part A for every day after the LD Date to and including the Date of Practical Completion or the date that the Contract is terminated pursuant to Clause 44, whichever first occurs.
If after the Contractor has paid or the Principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith repay to the Contractor any liquidated damages paid or deducted in respect of the period to and including the new Date for Practical Completion.

The evidence was as follows:

(a) Uber’s David Rogalsky denied that Uber’s works were late and said that,

Mr Hristovski and MIFA have represented to Uber on several occasions that MIFA would not attempt to claim Liquidated Damages. MIFA and Uber have agreed that no liquidated damages were payable. Uber relied upon these statements.

(b) The statement that Uber and MIFA had agreed is conclusionary and an inadmissible opinion. The representations to which Mr Rogalsky refers are those contained in the correspondence annexed to his affidavit. Mr Rogalsky was not cross-examined. MIFA submitted that the time to challenge the evidence in that way was at a hearing at which the parties’ underlying entitlements were to be determined.

(c) It was apparent on the face of the correspondence produced on this application that it was an incomplete record of communications between the parties on the subject of liquidated damages.

(d) The first communication was an email of 24 October 2018. It is apparent from that email that there had been prior communications on the subject of liquidated damages, which were not produced before me. In that email Rogalsky said relevantly to Hristovski,

There will be no LDs. If there are [to] be LDs be a man and advise in writing as the superintendent. You have verbally advised there will not be LDs, but you still hide behind your keyboard saying their [sic] will be. Classic keyboard warrior.
Your conflict of interest as the developer/superintendent is very obvious.
We can both play that game.
Unless I have a current building permit for the foyer all works in this area are on hold. … Delays to this area are now hindering the construction completion program … Delay costs will be provided once the extent of the delay can be quantified in due coarse [sic].

the statutory entitlement to a progress payment and the procedure for recovery of a progress payment are separate from, and in addition to, a contractor’s entitlement under a construction contract to receive payment for completed work. The statutory entitlement is predicated upon the existence of a construction contract, but the entitlement and the means available for its enforcement stand apart from the parties’ rights under the contract.[52]

[51]Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1 (Probuild).

[52]Probuild, 16 [38] (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ).

It is clear that the fact that liquidated damages may be excluded under s 10B for the purposes of an entitlement under the SOPA does not have the consequence that they may not be claimed under a construction contract or taken into account for the purposes of a payment certificate issued under a contract. As noted earlier, the parties agreed that a payment certificate under the Contract was also taken to be a payment schedule under the SOPA.[53] This proceeding concerns the parties’ rights under the Contract. For this purpose it is beside the point that under an application for a statutory progress payment, a claim in respect of liquidated damages may be excluded.
[53]Contract, cl 42A.

Finally, Uber submitted that “there is no other express right provided in the Building Contract to set off time-related costs in a payment schedule issued under the [SOPA]”. Uber’s submissions were addressed to the SOPA but sought to engage with rights now litigated, and pointed to the absence of an express right of set-off for the purposes of certification. It was implicit in MIFA’s submissions the Contract contemplated that certification may entail the setting off or deduction of amounts owed from one party to the other in order to reach an amount to be certified (which had evidently occurred with the issuing of the December Payment Schedule), although no explicit submission to that effect was made.

After my decision was reserved I sought clarification from the parties on this point. By a communication from my chambers I asked that the defendant identify the provisions of the Contract that explicitly or implicitly enabled the Superintendent, when certifying an amount for payment under cl 42.1, to make allowances or adjustments for amounts owed by the contractor to the principal. I sought short submissions on that point from MIFA and from Uber in reply.

MIFA submitted, in substance, that by cl 42.1, which provides that subject to the provisions of the Contract, “the principal shall pay to the contractor or the contractor shall pay to the principal, as the case may be, an amount not less than the amount shown in such a certificate as due to the contractor or the principal as the case may be”,[54] the parties intended that the Superintendent may certify an amount as payable from the contractor to the principal and in order to reach that result, must have the ability to off-set amounts owed by the contractor to the principal. That is so, although the Contract does not specify precisely how the Superintendent shall arrive at a certified amount. This is an example of a commonly adopted process whereby a superintendent is required to certify an amount due where the contract does not specify fixed or objective criteria whereupon there can only be one correct value, or whereby there is no room for discretionary judgment.[55] The Contract does provide for the calculation of the Contractor’s indebtedness to the Principal for liquidated damages, which the contactor will pay or the principal will deduct (cl 35.6).
[54]Emphasis added.
[55]See generally Dura (Australia) Construction Pty Ltd v Hue Boutique Living Pty Ltd (No. 3) [2012] VSC 99, [630] (John Dixon J) (certification was discussed in that case in the context of whether a certificate was open to review for error).

I accept MIFA’s submissions. That construction accords with what a reasonable business person would understand by the process required by cl 42.1. The ability of the Superintendent to set-off or deduct amounts owing by one party to the other in the process of certification, is to be distinguished from deduction by a principal of an amount claimed for liquidated damages against an amount certified as owing by the principal to the contractor. The latter process is impermissible without a certificate adjusting the amount payable or an express contractual power.[56]
[56] See Sopov, 141-145 [78]-[97] (Whelan AJA).

Uber did not make any submissions against this construction and accepted the characterisation of the role of the Superintendent and that the Contract contemplates that the Superintendent may certify amounts due from the contractor to the principal.

However, by its written submissions of 15 September 2020 Uber sought to advance the contention that there was no certification by the Superintendent, either in respect of liquidated damages or at all. The December Payment Schedule was not such a certificate. That was so, it submitted, for three reasons, namely that the December Payment Schedule was issued by MIFA and not the Superintendent; that the Schedule purported to set out a “scheduled amount” for the purposes of the SOPA whereas the Contract does not contemplate that a payment schedule may serve as a payment certificate (only the reverse); and that the Schedule was not accompanied by a draw-down report by the Quantity Surveyor or any evidence of certification by the Superintendent “which might tend to show that the Superintendent had taken the measures required of him under the Contract in arriving at the amounts asserted”.

Those submissions were not responsive to the narrow question posed by the Court, and nor were they responsive to the defendant’s submissions.

The case that there was in fact no certificate within the meaning of the Contract was not advanced during the course of Uber’s case, save that under the heading, “conclusion on serious issue to be tried”, Uber’s written submissions of 17 February 2020 stated, “MIFA’s claims to amounts owed by Uber under the Contract are … unsupported by a proper certification under the contract of the amounts owing or any other crystallised entitlement”. A footnote to that statement read that “the December 9 Payment Schedule is purported to issue from MIFA, not the Superintendent and is signed by MH ‘for and on behalf of MIFA’. MH is not wearing the superintendents’ hat.” That contention was not developed elsewhere. It was not developed any further in Uber’s submissions of 15 September 2020, by elaboration or reference to the provisions of the Contract or to any authority.

The submission does not support the conclusion that no amount was due and payable under the Contract. It will be recalled that the parties agreed that MIFA’s sole director, Michael Hristovski, was to be the Superintendent, and the Contract contemplated that the Superintendent would, in receiving payment claims and issuing certificates, act effectively in dual capacities, both as Supervisor and as agent for MIFA. Clause 42A of the Contract provided that a payment claim submitted to the Superintendent was received by the Superintendent as agent for the Principal, that any payment certificate given under the Contract was taken to be a payment schedule under the SOPA and unless notified to Uber, the Superintendent would give all payment certificates and carry out all other functions of the Principal under the SOPA as agent of the Principal. The December Payment Schedule, which directed that, “[p]ursuant to clause 42.1 of the Contract, Uber must pay to MIFA the Scheduled Amount (namely the sum of $192,053.46 including GST) by 23 December 2019, being 28 days from the date the Superintendent received the Payment Claim” was said to have been issued by Michael Hristovski “for and on behalf of MIFA”. That statement was consistent with Clause 42A. Given the circumstances in which the 15 September submissions were received it is unnecessary to consider this issue any further.

Otherwise, Uber sought to advance matters that it did not raise during the course of its case, and could and should have raised had it wished to do so. Uber’s third point, in particular, seeks to address (without any elaboration) the absence of evidence concerning the Superintendent’s conduct, on a point not previously raised. Uber did not seek leave to re-open its case or identify any reason why it ought be permitted to raise fresh issues at this time. There was no suggestion that these matters could not have been raised earlier. There is nothing apparent in the circumstances of the case that suggest that Uber’s fresh arguments should be entertained.[57] Those matters have, accordingly, not been entertained.
[57]Once the parties have closed their cases and judgment is reserved, it is only in exceptional circumstances that a party may be granted leave to re-open its case (Spotlight Pty Ltd v NCON Australia Pty Ltd (2012) 46 VR 1 (Spotlight), 5 [17]; Di Stasio Pty Ltd v R & K Services Pty Ltd [2018] VSCA 340 [59]). The overriding principle is whether the justice of the case, taken as a whole, favours the grant of leave to re-open (Spotlight, 7 [26]; Ezra Abrahams Pty Ltd v Milburn [2017] VSCA 355 [46]).

Claim arising from asserted defective works

By the December Payment Schedule MIFA asserted that it had incurred or would shortly incur costs of “at least $26,648.10” to rectify and complete Uber’s defective works. A list of works was set out in the Schedule.

Uber denied that its works were defective and submitted that no moneys were due and payable to MIFA in respect of defective works because MIFA had not issued a Superintendent’s directive to Uber to remedy the defects pursuant to cll 30.3, 30.4 or 30.5 of the Contract. As Uber put it, where the principal elects to accept defective work it must nevertheless communicate that that is its intention. Builders should not have to look for an implied direction or election, and a statement in the payment schedule that the works are defective is inadequate for that purpose. Furthermore, cl 30 requires that where defective work is accepted, it must be valued in accordance with cl 40.5 of the Contract. That did not occur. Uber pointed to numerous failures by MIFA to comply with the contractually specified process, including the requirement that where the Contract requires that a valuation occur, the relevant party shall allow the other party an amount ascertained by the Superintendent as set out, including where rates are not specified, that reasonable rates or prices shall be used. Uber contends that no rates in respect of the claimed amounts for defective work are specified and that it is not possible to ascertain from the information provided that the asserted defects are attributable to the work of Uber. Ubers says that MIFA undertook some of the disputed works itself.

MIFA submitted that the existence and quantum of the costs to rectify any defective work by Uber are a matter that does not arise for determination on this application. Having regard to my conclusions set out above in relation to the basis on which amounts are due and payable under the Contract and the conditions for recourse to security, I accept MIFA’s submission. For the reasons explained, it is not to the point that Uber may be able to establish that the amount claimed in respect of defects was not properly due and payable. Furthermore, although it may be arguable that the statement by MIFA in the December Payment Schedule to the effect that it has or will incur costs in the stated amount to rectify and complete Uber’s works, is capable of amounting to a direction within the meaning of the Contract,[58] that question does not arise for determination on this application.
[58]The expression “direction” is defined to include, “agreement, approval, authorisation, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement”.

MIFA filed a report from Richard Curie, a building surveyor. Mr Curie was instructed to inspect the site and did so on 31 January 2020. The report was described as a preliminary appraisal of the building and its purpose was evidently to identify any defects and non-compliant work. Mr Curie conducted a visual assessment during which he identified and then reported on works which he described as defective. The report largely consists of photographs or descriptions of the said works. MIFA subsequently filed a report authored by Peter Clack, a quantity surveyor. Mr Clack was instructed to prepare “a costs assessment to rectify/complete the defective and incomplete work identified in [Curie’s] report”. Mr Clack provided an opinion based on a site inspection and documentation received, that the costs to rectify the defects identified in the Curie report and complete the identified incomplete works was $97,840. MIFA submitted that the sole purpose for its reliance on the Curie and Clack reports was to demonstrate that in certifying a claim for defects, it had acted bona fide. It was not seeking to assert that on this application the existence of defective works or the costs attributable thereto could or should be determined.

Uber sought and was granted leave to respond to the Clack and Curie reports. It filed and relied upon the report of Mr Berkowitz, a quantity surveyor. Mr Berkowitz’s opinion was that total rectification costs for works within Uber’s scope of works was $8,267, and other defective or incomplete works were costed at $19,852. Uber advanced submissions in support of Mr Berkowitz’s opinion and made numerous criticisms of the Clack and Curie reports, including as to their instructions.

MIFA submitted that Berkowitz’s report was irrelevant to any question before the Court, namely whether the defendant had a contractual entitlement to have recourse to the security under the Contract. The reports of Curie, Clack and Berkowitz, in its submission, demonstrated relevantly that the parties disagree as to the existence and value of the plaintiff’s defective and incomplete work under the Contract, which is a matter relevant to the underlying entitlement to payment and not to the entitlement of MIFA to have recourse to the security. In light of my reasons set out above, I accept MIFA’s submission.

Uber further contended that the parties had agreed that certain items of work were to be excluded from Uber’s scope of works. The contours of the alleged agreement were ill-defined. The existence of the agreement was said to support the contention that MIFA acted in bad faith by instructing Mr Curie to assess works which MIFA is said to have known were not performed by Uber; and that liability for any defects in works other than Uber's works cannot properly found an entitlement on the part of MIFA for recourse to Uber's security.

As to the submission that MIFA acted in bad faith when instructing Mr Curie to prepare his report, it is sufficient to note that Mr Curie’s report was not tendered by MIFA for the purpose of proving the cost of rectifying the works alleged to be defective by MIFA, but only for the purpose of demonstrating that there was a bona fide dispute as to the defective works. The report was not described as anything other than a preliminary report.

As to the submission that MIFA could not have recourse to the security in order to rectify defective works which were outside the scope of Uber’s works, Uber’s submissions are premised on the proposition that in order to found recourse to the security an amount must be “properly due and payable”, in the sense discussed above. I have rejected that contention.

For completeness I will observe that the relationship between the works said to have been excluded (described in submissions as “the balustrade works” and “the lobby toilet works”) and the amounts claimed in the December Payment Schedule was unclear. Furthermore, Uber has not established a serious question as to the existence of the asserted agreement. The evidence was as follows:

(a) Uber relied upon the email chain between David Rogalsky and Michael Hristovski, described at paragraphs 88(e) to 88(g) above. At 5:50am on 22 November 2018, David Rogalsky said the following in an email to Michael Hristovksi:

…Thanks for yesterdays [sic] meeting on site.
As discussed with the ground floor lobby, office tenancy and back of house the following will occur.
1. In relation to the foyer and office tenancy you will get approval of the drawing and layout from your Building Surveyor with the current as built slab profile, grades etc. as instructed in January 2018. Once we have this we will construct the area.
…
7. You will construct the toilet including all walls fixtures, tiling etc. we will install the door and door frame from the public area to the toilet.
…
11. You will do all handrails and balustrades to all stairs and back of house areas as discussed on site and a credit will be issued as per the variation you already have. To put it simply we will do the balcony balustrade and you will do any internal (public area) balustrades and hand rails. The credit issued will be as per VO-29 (attached).

(b) Uber relies on Mr Hristovski’s reply of 4:55pm, in order to establish the fact of an express agreement as to the removal of the “lobby toilet works” from Uber’s scope of works:

POINT 7,
Just spoke with David – CONFIRMED

(c) At 5:44pm, Mr Hristovski replied again, putting his comments on Mr Rogalsky’s email of 5:50am in red text, next to the text of the 5:50am email, as follows (the capitalised text being Mr Hristovski’s comments):

7. You will construct the toilet including all walls fixtures, tiling etc. we will install the door and door frame from the public area to the toilet. MY UNDERSTANDING DIFFERS , TBC IN PERSON AND NOTED AND SIGNED OFF .. [sic]

(d) At 10:39am on 23 November 2018, Rogalsky replied to Hristovski this time adding his comments in blue text, and requesting that Hristovski respond with a “simple yes please”. These further comments begin after the capitalised text, as follows:

7. You will construct the toilet including all walls fixtures, tiling etc. we will install the door and door frame from the public area to the toilet. MY UNDERSTANDING DIFFERS , TBC IN PERSON AND NOTED AND SIGNED OFF .. [sic] Is this agreed or not. Can you clarify please. Pretty simple to say yes or no. We complete the tenancy fire separation walls and door separating the office/retail/toilet from the lobby only. You do the rest including all works within the bathroom area comprising the lightweight walls

(e) There did not appear to be, in evidence, any response to Mr Rogalsky’s 23 November email.

(f) Given Mr Rogalsky’s question to Mr Hristovski as to whether point 7 was agreed, and the absence of any response, it is apparent that the 22-23 November 2018 emails cannot form the basis of any agreement as to the scope of works.

(g) Uber submitted that the note prepared by NAB’s Robert Moulden and circulated after the 14 March 2019 meeting corroborated the making of the agreement (see above at paragraph 67(h)). Even leaving to one side that the note is simply Mr Moulden’s summary of his understanding of what was discussed at the meeting, the reference to works to be taken out of the contract is expressed in prospective and qualified terms.

Bad faith and unconscionability

Uber submitted that MIFA’s attempted call on the security was not in good faith and was unconscionable because, in summary:

(a) its claim was founded largely on amounts said to be unpaid in respect of liquidated damages and variations, in circumstances in which MIFA had represented and had agreed that no such amounts would be claimed under the Contract;

(b) the claim in respect of variations was also lacking in bona fides because items previously paid and assessed were reversed without any valuation having occurred, which course sought to avoid the processes mandated by the Contract;

(c) MIFA claimed liquidated damages asserting Uber’s failure to reach practical completion on time and sought recourse to the security on that basis, but had in fact by its own conduct prevented Uber from reaching practical completion;

(d) The absence of a proper basis for the claims that founded recourse to the security must have been known to MIFA because its sole director, Michael Hristovski, was both the Superintendent who certified the claims and MIFA’s representative in the parties’ dealings under the Contract. In that capacity Mr Hristovski had full knowledge of the relevant communications;

(e) MIFA was required to ensure that the Superintendent acted honesty and fairly. It was not fair for MIFA to call on the security in the circumstances. The fairness of MIFA’s call should be understood by reference to Uber’s relative lack of power in that the Superintendent was appointed by MIFA and was also its representative.

MIFA submitted, in short, that the certification of the amounts claimed and the call on the security were within the terms of the Contract and the risk allocation framework contemplated by the Contract and in those circumstances there was no element of bad faith, lack of bona fides or unconscionability in MIFA’s conduct.

It is accepted that recourse to a letter of credit or bank guarantee may be restrained where the beneficiary of that instrument, seeking to have recourse, is acting fraudulently or unconscionably.[59] Uber did not seek to differentiate in its submissions between concepts of bad faith, lack of bona fides or unconscionability. It is necessary to say something briefly about statutory unconscionability and its relationship with the principles otherwise governing recourse to performance bonds.
[59]Clough, 494 [138] (French, Jacobson and Graham JJ).

Although much has been written on the subject of statutory unconscionability since the decision of Batt J in Olex Focas,[60] the analysis in that case remains relevant. There, his Honour considered statutory unconscionability in circumstances in which the beneficiary of bank guarantees attempted to call on them, it was said, without a belief that it had any entitlement or right to do so, or in the positive belief that it had no entitlement or right to do so. In substance, Batt J accepted that the unconscionability provisions of the Australian Consumer Law[61] may found relief in the form of an injunction restraining recourse to a performance bond notwithstanding the accepted commercial purpose of such a bond, but in construing the standard of conduct required to establish unconscionability, reference must be had to the factual context, which includes a historical purpose of the use of such bonds, which is taken to be understood by the parties contracting for a risk allocation regime.[62]
[60]Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380 (Batt J) (Olex Focas).
[61]Section 20 of the Australian Consumer Law is relevantly analogous to the former ss 51AA of the Trade Practices Act 1974 (Cth), as considered by Batt J in Olex Focas. Sections 21 and 22 of the Australian Consumer Law, are relevantly analogous, though not identical to, the former ss 51AB and 51AC of the former Trade Practices Act 1974 (Cth).
[62]See Olex Focas at 403-404. See Clough, in which the Full Court of the Federal Court, at 492-494 [129]-[139], applied Olex Focas in determining to refuse an injunction restraining recourse to performance bank guarantees, specifically addressing unconscionable conduct under the former s 51AA of the Trade Practices Act, an analogue to the present s 20 of the Australian Consumer Law.

For present purposes the principles are illustrated by the decision of Austin J of the New South Wales Supreme Court in Boral Formwork[63] in which His Honour applied the reasoning in Olex Focas in circumstances in which a party had sought recourse to a standby letter of credit. In determining whether the conduct of the beneficiary was unconscionable under the former s 51AA of the Trade Practices Act, Austin J held that the principle of autonomy (whereby a court will enforce the terms of an unconditional letter of credit or like guarantee on its own terms without looking to the underlying contract) was a relevant consideration. His Honour said:

If the parties have agreed to protect the beneficiary from credit risk there is unlikely to be anything unconscionable in the consequence that the beneficiary may (for the benefit of its creditors) call on the irrevocable instrument at the account party’s expense leaving the account party to claim in the beneficiary’s insolvency if the dispute is resolved in its favour …;[64]

and that,
Even if the conduct is unconscionable, the principle of autonomy is relevant to the exercise of the Court’s discretion to grant injunctive relief or leave the plaintiff to other remedies. Here the circumstances, involving as they do a call on the letter of credit on a false basis, are sufficiently special to overcome the hesitation which the principle of autonomy generates.[65]

[63]Boral Formwork & Scaffolding Pty Ltd v Action Makers Limited (2003) 1 BFRA 34 (Austin J) (Boral Formwork).

[64]Boral Formwork, 53 [81].

[65]Boral Formwork, 55 [94].

In Boral Formwork the party seeking recourse had understood that the disputed amount was not in fact a sum due and therefore not capable of being the subject of a beneficiary’s certificate, because the dispute had been settled by actions of an administrator in which the beneficiary had acquiesced.[66] In fact, the certification that the disputed funds were due, was false.[67] In those circumstances the beneficiary was restrained from calling on the letters of credit.
[66]Boral Formwork, 53 [82].
[67]Boral Formwork, 51 [71].

The paradigm through which Uber analysed the present facts approximated that adopted in Boral Formwork. There was nothing inapt about the application of that paradigm in theory, but the difficulty for Uber is that the factual analysis set out elsewhere shows that the contention is without any real foundation. It follows largely from the analysis of the evidence set out earlier that in my view, MIFA’s attempt to call on the guarantees was neither in bad faith nor unconscionable.

The characterisation of MIFA’s conduct as lacking good faith or bona fides and as unconscionable was founded, factually, on the agreements and representations that Uber contended had been made. I do not accept that Uber has established to a sufficient degree, the agreements and representations on which the claim is founded.

Insofar as this aspect of Uber’s claim is grounded in the failure of MIFA to follow the contractual process for valuation of works related to variations, that issue goes to the parties’ underlying entitlements and not to MIFA’s entitlement to access the performance security. Similarly, questions concerning when practical completion was or ought to have been reached are not questions that arise on this application in that they cannot properly prevent MIFA’s access to the security.

Those matters underscore the fact that Ubers’ analysis is predicated on its construction of the recourse provisions in the Contract, which I reject.

I accept that MIFA, and not Uber, was the beneficiary of the performance guarantee under a contract that allocated risk to Uber and that MIFA’s representative, not Uber’s, was the nominated Superintendent. As a result, MIFA’s position in the parties’ relationship was dominant. But the parties’ respective positions must be understood in the context of the agreed contractual regime. This was not a situation where the contract itself was created in circumstances amounting to transactional unconscionability (none was alleged). It is true that a party’s conduct might be properly characterised as unconscionable even where it is otherwise acting lawfully – for example by acting within the boundaries of a contract.[68] However, given the conclusions I have reached on the facts, there is no basis on which to characterise MIFA’s insistence on its contractual rights as, say, abusive, commercially dishonest or in some other way that might be described as evidencing bad faith or unconscionability.
[68]Stern v McArthur (1988) 165 CLR 489, 526-7 (Deane and Dawson JJ).

It is important to emphasise that those conclusions are expressed in the context of an application to access security provided pursuant to an interim risk allocation regime, which serves a particular and well understood commercial purpose. That is to say nothing of what arguments might be available to Uber on the final determination of the parties’ rights and obligations.

Satisfaction of Contractual Requirements to Call on Security

It follows from the earlier analysis that I am satisfied that the contractual pre-requisites for MIFA’s calling on the security – namely that amounts are due and payable to it under the Contract (having been certified under cl 42.1) and remain unpaid within the time specified and after the giving by MIFA of notice of its intention to have recourse – are satisfied.

Balance of Convenience

Uber submitted that the balance of convenience favours the maintenance of the status quo, which is leaving the guarantees where they are, and requiring MIFA to withdraw its demands until such time as the questions concerning practical completion are determined in the context of the Magistrates’ Court proceeding.

Uber submitted that there will be no sensible harm to MIFA in requiring it to wait, evidenced by the fact that it waited some months before invoking “old” claims to found its attempted recourse to the guarantees.

MIFA submitted that justice favours allowing it to access the guarantees, because the parties have already allocated the risk of who would be out of pocket pending a final determination of their respective entitlements. As the Court of Appeal observed in Siemens, the effect of allowing a party in those circumstances to restrain the beneficiary of a guarantee from having recourse to it would be to deny the contractual risk allocation for which it bargained. In that case the Court of Appeal said:

We have referred to the risk of injustice being suffered by Siemens. The potential injustice to Bulgana is of a different kind. If its construction is ultimately found to be correct, the grant of an interlocutory injunction will have prevented Bulgana from relying on its security which, on that construction, is integral to the risk allocation regime agreed between the parties. … [T]his is a prospect about which courts considering applications to restrain reliance on performance bonds need to be vigilant.[69]

[69]Siemens, [121].

Given the conclusions I have reached on the construction of the Contract, I consider that MIFA correctly describes the effect of refusing it access to the guarantees, and that Uber mischaracterises the status quo. As the Court of Appeal said in Sugar, this kind of contractual risk allocation fundamentally alters the context in which a court must exercise its discretion by “changing the complexion of the status quo and raising the prospect of substantial injustice if the purpose of the provision is defeated”.[70]
[70]Sugar, 412 [31] (Osborn and Ferguson JJA).

A countervailing consideration is the financial risk to which Uber is exposed if MIFA now gains access to the guarantees but it is ultimately not entitled to the moneys it claims.

Uber contended that there is a real risk that MIFA will not be in a position to repay the sum of the guarantees (in the sum of $162,500). MIFA submitted that there is no reason damages would not be an adequate remedy, and that there was insufficient evidence that MIFA would not be able to repay the amount of the guarantees.

On that question the evidence was:

(a) MIFA has paid up capital of $10.

(b) MIFA holds nine titles to property which, collectively, are the site of the development the subject of the Contract. Each of the titles is subject to a mortgage with the NAB issued on 1 November 2018. No evidence was adduced as to the value of those encumbrances.

(c) The Contract had a price of $3.25 million before any variations were approved.

(d) Uber adduced evidence of two creditor’s statutory demands issued by Uber to MIFA. The first demand was served on MIFA on 14 May 2019 and paid on 30 May 2019. The second demand, for the sum of $2,134, was served on 13 February 2020 and paid on 10 March 2020, more than 21 days after the service of the demand. Uber’s submission was that pursuant to s 459C(2) of the Corporations Act 2001 (Cth), a company is presumed to be insolvent if it has failed to pay a statutory demand within the statutory time-frame of 21 days, and it should follow for the purpose of this application that MIFA’s insolvency is to be presumed. The submission does not sensibly advance the issue. Section 459C(1) has effect for the purposes of specific applications made under the Corporations Act, none of which are relevant to this dispute. Uber then submitted that even if MIFA could not be presumed to be insolvent, a “cloud of a presumption of insolvency” is a relevant consideration, and MIFA’s late payment of the demand should “raise eyebrows” in relation to whether MIFA will be able to re-pay Uber in the event that it is ultimately not entitled to the moneys claimed. Given the parties’ history of disputes concerning payments and the limited nature of the evidence, the late payment of one statutory demand in the sum of $2,134 is of little assistance in reaching any view about MIFA’s ability to make repayment in respect of the funds the subject of this dispute.

The evidence was inconclusive. It suggests there could be a risk that MIFA will not be able to repay the amount of the guarantees, but it is not possible on the evidence to assess with any degree of confidence, the prospects of such a risk materialising. Uber did not discharge its onus in this regard.

Weighing all considerations together, and having regard to the views I have expressed on the contractual construction issue and the parties’ submissions on the serious questions to be tried, I consider that the refusal of an injunction invites the least risk of injustice.

Disposition

Uber’s application is dismissed.

Order 2 of the Orders of the Orders of the Honourable Justice Emerton made on 13 January 2020 will be discharged.

I will hear that parties in relation to costs.

[2020] VSC 596

18 September 2020