York Civil Pty Ltd v Coleman Rail Pty Ltd - [2014] SASC 122

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
YORK CIVIL PTY LTD v COLEMAN RAIL PTY LTD
[2014] SASC 122
Judgment of The Honourable Justice Stanley
1 September 2014
EQUITY - EQUITABLE REMEDIES - SPECIFIC PERFORMANCE - JURISDICTION AND AVAILABILITY - GENERAL PRINCIPLES
Interlocutory application.
The defendant seeks an order for specific performance of a clause in a contract between the parties and an order for a stay of proceedings pending specific performance.
The plaintiff and the defendant were parties to a Joint Venture Agreement for the refurbishment of various railway stations pursuant to a contract with the Government of South Australia.
The joint venture was not successful. Losses were incurred in the performance of the railway station work. The parties are in dispute as to their respective liabilities to meet those losses. Their liabilities turn on the proper construction of the Joint Venture Agreement and its application to facts which are in dispute.
The application for specific performance concerns the obtaining of an auditor’s report. The application was brought in reliance upon the provisions of clause 10.4 of the Joint Venture Agreement. However, in the course of the argument, the defendant sought to recast the application in reliance upon clause 17.1 of the Joint Venture Agreement.
The defendant seeks orders for specific performance requiring the plaintiff to agree to the appointment of BDO Australia as auditor to undertake the final audit prescribed in clause 17.1 and to do all things reasonably required by BDO to enable it to undertake the final audit of the accounts of the joint venture.
The plaintiff opposes the application.
Whether specific performance is available. Whether it is appropriate to make an order for specific performance. Whether proceedings ought to be stayed pending specific performance.
Held (dismissing the application):
1. The relevant clauses of the Joint Venture Agreement are no longer operative and are unenforceable. Specific performance is no longer available (at [17] - [25]).
2. There is no agreement between the parties in relation to matters critical to the performance of an audit which were left unspecified in the Joint Venture Agreement. This Court will not compel specific performance where there is not sufficient definition of the obligations of the defaulting party (at [26] - [27]).
3. The defendant is not seeking specific performance of the whole contract but merely a particular term. Equity will not intervene where specific performance of only part of the contract is sought (at [26]; [28]).
4. Where neither party has agreed to be bound by the result of the audit there is little utility in requiring specific performance. The determination of the state of accounts of the joint venture will not resolve the dispute between the parties. It would be futile to order specific performance (at [26]; [29]).
Re Dingjan; ex parte Wagner 183 CLR 323; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Holland v Wiltshire (1954) 90 CLR 409; Victorian Economic Development Corporation v Cloverdale Pty Ltd [1992] 1 VR 596; Moschie v Lep Air Services Ltd [1973] AC 331; Wolverhampton & Walsall Railway Co v London & North Western Railway Co (1873) LR 16 Eq 433; Pakenham Upper Fruit Co v Crosby (1924) 35 CLR 386; JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282; Waterways Authority of New South Wales v Coal and Allied (Operations) Pty Ltd [2007] NSWCA 276; Quadrant Visual Communications Ltd v Hutchison Telephone (UK) Ltd [1993] BCLC 442; Posner v Scott-Lewis [1987] Ch 25; CH Giles & Co Ltd v Morris [1972] 1 WLR 307; Gillespie v Whiteoak [1989] 1 Qd R 284; Ryan v Mutual Tontine Westminster Chambers Association Ltd [1893] 1 Ch 116; Marks v CCH Australia [1999] 3 VR 513, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"Specific performance"

YORK CIVIL PTY LTD v COLEMAN RAIL PTY LTD
[2014] SASC 122
STANLEY J:
Introduction

This is an interlocutory application seeking an order for specific performance of a clause in a contract between the parties and an order for a stay of proceedings pending specific performance.
The plaintiff and the defendant were parties to a Joint Venture Agreement (the JVA) for the refurbishment of various railway stations pursuant to a contract with the Government of South Australia.
The joint venture was not successful. Losses were incurred in the performance of the railway station work. The parties are in dispute as to their respective liabilities to meet those losses. Their liabilities turn on the proper construction of the JVA and its application to facts which are in dispute.
The plaintiff claims that in accordance with the terms of the JVA the defendant is liable to contribute equally to the losses. The defendant alleges that substantial parts of the works required under the Project Contract were Allocated Works in accordance with clause 19.4 of the JVA, for which the plaintiff had sole responsibility. The defendant further alleges that the plaintiff had been grossly negligent, and it had engaged subcontractors at a cost in excess of that anticipated.
The present application for specific performance concerns the obtaining of an auditor’s report. The application was brought in reliance upon the provisions of clause 10.4 of the JVA. However, in the course of the argument, the defendant sought to recast the application in reliance upon clause 17.1 of the JVA. It is convenient to set out the terms of clauses 10.4 and 17.1:
10.4The Management Committee must ensure that the firm of chartered accountants appointed by the Parties in Schedule 1 audits the books of account for the Joint Venture annually, and finalises the audit report within one month of the designated reporting period.
…
17.1The Parties must wind up the affairs of the Joint Venture as soon as practicable after the discharge or termination of the Project Contract. The Management Committee must arrange or conduct a final audit to determine the state of accounts of the Joint Venture. The Joint Venture must bear the costs of this audit and any audit under clause 10.4.
Notwithstanding the terms of clause 10.4 the parties did not appoint a firm of chartered accountants in Schedule 1 to the JVA.
The defendant seeks orders for specific performance requiring the plaintiff to agree to the appointment of BDO Australia as auditor to undertake the final audit prescribed in clause 17.1 and to do all things reasonably required by BDO to enable it to undertake the final audit of the accounts of the joint venture. It submits that the audit would be useful in identifying the losses said to have been incurred by the joint venture and whether those losses form part of the joint venture’s project budget or were expenses in excess of the project budget which were agreed in writing and approved in advance by the joint venture Management Committee pursuant to clause 9.2 of the JVA.
Clause 9.2 provides:
9.2The following (together with any other costs that have the prior approval of the Management Committee) will be accountable as costs and expenses of the Joint Venture provided that the amount incurred is within the limit set in the Project Budget or otherwise approved in writing in advance by the Management Committee.
…
The plaintiff opposes the orders sought for specific performance on the basis that the terms of the JVA providing for the appointment of an auditor are no longer operative, the performance of the audit sought is not possible, and, in any event, no utility is to be served by the performance of an audit.
The JVA
The parties agreed that the JVA would “… continue for the term of the Project Contract. When the Project Contract is fully and finally completed and discharged, including the completion of all defects, liability periods and other contractual obligations, this Joint Venture will also be deemed completed.”[1]
[1] Clause 2.3 of the JVA.
The Project Contract is defined in the JVA to mean the agreement between the parties and the Rail Commissioner of South Australia to perform the construction works on the Elizabeth, Evanston and Chidda railway stations.
The parties further agreed that the provisions of the JVA, other than any rights of indemnity or warranties and the operation of clauses 17.7, 21 and 25, would terminate upon completion or termination of the joint venture without limiting the rights of any party that had accrued prior to that time.[2]
[2] Clause 17.8 of the JVA.
Clause 17.7 provides for the liability of the parties for all losses and liabilities, including any claims made after the termination of the project contract made against either or both parties as a result of the execution of the works or the terms of the project contract.
Clause 21 deals with confidentiality and intellectual property.
Clause 25 deals with dispute resolution.
Rights of indemnity are created pursuant to clause 19 of the JVA and clause 33 provides that warranties and indemnities in the agreement survive the termination of the agreement.
Consideration
The plaintiff’s principal submission is that the relevant clause or clauses of the JVA for which the order for specific performance is sought are no longer capable of being enforced. As the projects to which the JVA relate reached practical completion over two years ago, and the relevant defects liability periods have ended, the JVA by its own terms is “deemed completed” in accordance with clause 2.3 and its provisions (other than those which are expressed to survive) have terminated in accordance with clause 17.8. Clause 17.8 provides:
The provisions of this Agreement, other than any rights of indemnity and clauses 17.7, 21 and 25, will terminate upon completion or termination of the Joint Venture. This will not limit the rights of any Party that accrued prior to completion or termination.
As such, the plaintiff submits the JVA is an executed, rather than an executory contract which is to be regarded as having been terminated.
In my view, whether the application is considered to have been made in respect of the obligation in clause 10.4 or the obligation in clause 17.1, the plaintiff’s submission must be accepted.
Contractual rights which have accrued before termination may be enforced, even after the termination of the contract, however, once the contract has been terminated, it is determined for all purposes and is discharged.[3] In Re Dingjan; ex parte Wagner[4] Brennan J (as he then was) said:[5]
A contract, created by the mutual agreement of the parties to be bound by its terms, is a source of mutual rights and obligations… However, when a contract is terminated, one or more of the parties may have a cause of action against the other party or parties but, generally speaking, no contractual right or obligation survives termination so as to be enforceable as such. It is true to say that the contract, viewed as a source of enforceable rights and obligations, has ceased to exist.
(Citations omitted).
[3] McDonald v Dennys Lascelles Ltd [1933] HCA 25, (1933) 48 CLR 457, Holland v Wiltshire [1954] HCA 42, (1954) 90 CLR 409 per Dixon CJ at 416; Victorian Economic Development Corporation v Cloverdale Pty Ltd [1992] 1 VR 596 at 602 – 603.
[4] [1995] HCA 16, (1995) 183 CLR 323.
[5] [1995] HCA 16 at [3], (1995) 183 CLR 323 at 341.
This principle is subject to one exception, namely, a contract which contains clauses intended to survive termination of the substantive provisions, for example, clauses relating to arbitration, confidential information and restraint of trade.
While certain provisions of the JVA fall into the recognised exception, such as clauses 17.7, 21 and 25 and those clauses containing warranties and indemnities, the operative clauses relied upon by the defendant, namely, 10.4 and 17.1, do not fall into this category. No rights had accrued prior to termination in respect of clauses 10.4 or 17.1. Rather, both parties had simply failed to take any step to invoke those clauses and the clauses are no longer operative and, as such, are unenforceable. They have effectively been determined and have ceased to exist as contractual obligations.[6]
[6] Moschie v Lep Air Services Ltd [1973] AC 331 per Lord Reid at 345 – 346.
This conclusion is fatal to the defendant’s application. This is because specific performance presupposes an executory as distinct from an executed contract.[7]
[7] Wolverhampton & Walsall Railway Co v London & North Western Railway Co (1873) LR 16 Eq 433 at 439; Pakenham Upper Fruit Co v Crosby (1924) 35 CLR 386 at 394; JC Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297.
In Waterways Authority of New South Wales v Coal and Allied (Operations) Pty Ltd[8] the New South Wales Court of Appeal held (per Beazley JA, Campbell JA agreeing) that:[9]
Where a contract has come to an end, in the sense that all the obligations under it have been performed … specific performance of obligations that were to be performed during the term is not available.
[8] [2007] NSWCA 276.
[9] Waterways Authority of New South Wales v Coal and Allied (Operations) Pty Ltd [2007] NSWCA 276 at [6].
Accordingly, specific performance is no longer available.
In any event, even if the JVA was still on foot, I consider that good reasons exist not to order specific performance. Specific performance is a discretionary remedy.[10] Equity will not intervene to compel specific performance where there is insufficient definition of the obligations of the defaulting party,[11] or where specific performance of only part of the contract is sought,[12] or where it would be futile to require specific performance of contractual obligations.[13]
[10] Quadrant Visual Communications Ltd v Hutchison Telephone (UK) Ltd [1993] BCLC 442 at 451.
[11] Posner v Scott-Lewis [1987] Ch 25 at 36; CH Giles & Co Ltd v Morris [1972] 1 WLR 307 at 319; Gillespie v Whiteoak [1989] 1 Qd R 284 at 288.
[12] Ryan v Mutual Tontine Westminster Chambers Association Ltd [1893] 1 Ch 116 at 123.
[13] Marks v CCH Australia [1999] 3 VR 513 at 535.
In this case there is no agreement between the parties in relation to matters critical to the performance of an audit which were left unspecified in the JVA, including which books of account would be audited, the period or periods to which the audit would relate, the scope and purpose of the audit and the opinions to be expressed thereunder and the identity of the auditor. This Court will not compel specific performance where there is not sufficient definition of the obligations of the defaulting party.
In addition, the defendant is not seeking specific performance of the whole contract but merely a particular term. In Ryan v Mutual Tontine Westminster Chambers Association Ltd[14] the plaintiff sought to enforce a contractual term providing for the appointment by the defendant of a porter who would perform certain duties, but asked also that, in the event that the court refused to enforce that term which required the performance of the duties, it would at least enforce the agreement to appoint the porter. The Court of Appeal refused on the basis that to enforce part only of the contract would have produced a result quite different from anything the parties had intended.
[14] [1893] 1 Ch 116 at 123.
Further, the Court of appeal in Ryan also held it would have been futile to enforce the appointment of the porter if the performance of the porter’s duties could not have been enforced. Where neither party has agreed to be bound by the result of the audit there is little utility in requiring specific performance. Notwithstanding an agreement in principle between the parties to the performance of an audit, neither of the parties has agreed to be bound by the result of any audit. In any event, the determination of the state of accounts of the joint venture will not resolve the dispute between the parties. Many of the issues in dispute on the pleadings require the determination of questions of mixed law and fact which cannot be resolved by the conduct of an audit. Even if it could, the defendant pleads other defences referred to above[15] which would be unaffected by the performance of the audit sought. Accordingly, it would be futile to order specific performance.
[15] At [4].
Conclusion
For all these reasons, I would decline to make the orders sought for specific performance.
In the circumstances there is no need to address the question of whether a stay should be granted while specific performance occurs.
Having reached this conclusion, however, it seems that there is some advantage in the litigation to the parties identifying certain accounting issues concerning the quantification of losses sustained and whether those losses were sustained within the project budget or in excess of the project budget. There may be other accounting issues additional to these which are susceptible to investigation by accountants. If the parties could agree upon these questions and jointly appoint a firm of accountants to undertake these inquiries on the basis that they would be bound by the results, considerable time and expense could be saved in the litigation. That is obviously a matter for the parties to consider.