Bose v Muggeridge Constructions Pty Ltd [2018] QDC 75

DISTRICT COURT OF QUEENSLAND CITATION: Bose v Muggeridge Constructions Pty Ltd [2018] QDC 75 PARTIES: DIPJIT BOSE AND SUJATA BOSE (Applicants) v MUGGERIDGE CONSTRUCTIONS PTY LTD ACN 130 842 572 (Respondent) FILE NO/S: 1365/18 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 2 May 2018 DELIVERED AT: Brisbane HEARING DATE: 20 April 2018 JUDGE: Farr SC DCJ ORDER: 1. It is declared that, pursuant to the written Contract between the applicants and the respondent dated 16 June 2016 (“the Contract”), the respondent is required to give a bank guarantee in the sum of $75,625.00 in the applicants’ favour to the applicants as security pursuant to clause 15 of the Contract. 2. The respondent specifically perform the Contract by giving a bank guarantee in the sum of $75,625.00 in the applicants’ favour (which shall not expire before 14 June 2018) to the applicants’ solicitor within three business days. 3. Unless written submissions to the contrary are received within seven days of the date of this order, the respondent is to pay the applicants’ costs of this application assessed on the standard basis. 4. The application is otherwise adjourned to a date to be fixed. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND -- 1 of 10 -- 2 INTERPRETATION OF CONTRACTS – where the applicants and respondent were parties to a contract for construction of an apartment building by the respondent – where the contract provided for a defect liability period and security for the applicant by way of money or bank guarantee – where bank guarantees expired prior to the expiry of the defect liability period – whether implied term that bank guarantees would not expire prior to the end of the defect liability period – whether required to give business efficacy to the contract CONTRACT – REMEDIES FOR BREACH OF CONTRACT – DAMAGES – SPECIFIC PERFORMANCE – whether damages are an adequate remedy – where an order for damages may cause harm to the applicants – where specific performance will not negatively affect the respondents – whether specific performance should be granted BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Queensland Nickel Pty Ltd (in liq) v Queensland Nickel Sales Pty Ltd & Ors [2017] QSC 305 COUNSEL: C J Crawford for the applicants J K Meredith for the respondent SOLICITORS: Jason Nott Solicitors for the applicants Simmonds Crowley Galvin Lawyers for the respondent [1] This is an application which seeks declaratory relief and specific performance of a building contract dated 16 June 2016 (“the Contract”). The applicant seeks a declaration that, pursuant to the contract, the respondent is required to give a bank guarantee to the applicants in the sum of $75,625 and an order that the respondent do so within three business days. [2] The respondent opposes the application. Background [3] On or about 16 June 2016, the parties entered into a written contract pursuant to which the respondent agreed to construct a new apartment building (eight apartments) on land owned by the applicants at 259 Wynnum Road, Norman Park. [4] The material terms of the schedule to the contract were as follows: (a) GST exclusive contract sum - $2,500,000 (b) GST on GST exclusive contract sum - $250,000 (c) Contract sum - $2,750,000 -- 2 of 10 -- 3 (d) Date for commencement – 1 August 2016 (e) Date for practical completion – 11 months after commencement (f) Defects liability period – six months [5] The Defects Liability Period commenced on the date that the works reached practical completion (clause 31 of the Contract). [6] Clause 15 of the contract dealt with the applicant’s security in the following terms: (a) Subject to the Contract, the Owner may deduct from any amount due to the contractor, and retain the percentage of the amount due stated in the Schedule or 10 per cent of the amount due, whichever is the lesser until the total amount retained by the owner equals 5 per cent of the GST Exclusive Contract Sum. (b) The amount retained by the Owner under clause 15(a) shall secure the performance of the Contractor’s obligations under the Contract, including the Contractor’s obligation to rectify defects. (c) In replacement to, or instead of, all or any part of the amount retained or that could be retained by the Owner under clause 15(a), the Contractor may at any time give to the Owner one or more bank guarantees, bonds or other valuable securities. (d) The Owner shall release to the Contractor: (i) all or that part of the amount retained by the Owner under clause 15(a) for which the Contractor may give to the Owner one or more bank guarantees, bonds or other valuable securities under clause 15(c) on the giving of the one or more bank guarantees, bonds or other valuable securities to the Owner; (ii) that part of the amount retained by the Owner under clause 15(a) or any bank guarantee, bond or other valuable security securing an amount, in excess of 2.5 per cent of the Contract Sum on Practical Completion, and (iii) the remainder of the amount retained by the Owner under clause 15(c), or any bank guarantee, bond or other valuable security given by the Contractor to the Owner under clause 15(c) and not released by the Owner to the Contractor under clause 15(d)(ii) on the expiration of the Defects Liability Period. (e) The Owner may use, or convert and use, all or any part of the amount retained by the Owner under clause 15(a), or any bank guarantee, bond or other valuable security given by the Contractor to the Owner under clause 15(c), to obtain an amount due by the Contractor to the Owner under the Contract only if the Owner gives the Contractor a written notice setting out: (i) the proposed use, and (ii) details of the amount due within 28 days after the Owner becomes aware or ought reasonably to have become aware of the Owner’s right to obtain the amount due. [7] Pursuant to the ‘Agreement’ in the schedule to the contract the parties agreed that the Contractor is to carry out and complete the works at the site in exchange for the Contract Sum and in accordance with the terms and conditions of the Contract. -- 3 of 10 -- 4 [8] Clause 24(a) of the Contract provides that if, after the works have reached practical completion but before expiration of the Defects Liability Period, the applicants become aware of any defective or incomplete work, the applicants shall give the respondent a written direction setting out the details of the defective or incomplete work and requiring the respondent to rectify and complete the work. Clause 24(b) provides that the respondent must rectify and complete the work within a reasonable time. [9] On or about 3 February 2017, the respondent obtained two bank guarantees from the National Australia Bank, each in the sum of $75,265.1 One of the guarantees was stated to expire on 29 September 2017 and the second was stated to expire on 29 March 2018. The applicants were the beneficiaries of both guarantees. [10] On 7 February 2017, the respondent emailed copies of the guarantees to the applicant. The applicant’s attest that they never received the original bank guarantees, which is disputed by the respondent. Both parties agree that this dispute is irrelevant to the issues in dispute in this matter. [11] On 29 September 2017, one of those bank guarantees expired. [12] On 14 December 2017, the Contract reached practical completion, which was later than originally anticipated by the parties. The six month Defects Liability Period commenced on that day. [13] On 5 March 2018, the male applicant sent an email to the respondent setting out the details of defective or incomplete building work and stated that those defects required the respondent’s immediate attention. [14] On 12 March 2018, the respondent sent an email to the male applicant, which stated, “I am based on Gold Coast for a hotel project nowadays and I live on the coast. Its difficult to inspect in person. Most of my staff have been diverted to Gold Coast accommodation too. With this development, can you please send through photos so that I can make an assessment.” [15] On 15 March 2018, the National Australia Bank informed the male applicant that it would only pay the amount of the remaining bank guarantee on presentation of the original document. [16] On 27 March 2018, the applicant sent a Trade Summary and Detail prepared by Accurate Estimating Services to the respondent. The Trade Summary and Detail stated that it would cost $94,847 to repair the respondent’s defective and incomplete building work. The applicants informed the respondent that they intended to use the remaining bank guarantee. [17] On 27 March 2018, the male applicant presented that bank guarantee to the National Australia Bank. The bank did not honour that guarantee because it was a copy and not the original document. [18] That same day, the respondent’s solicitors stated that the respondent would “review the schedule you have provided to day and provide its response within the term (sic) of the contract”. The respondent has not responded to the Trade Summary and Detail. 1 2.5 per cent of the Contract sum is $75,625.00. -- 4 of 10 -- 5 [19] The remaining bank guarantee expired on 29 March 2018. [20] On 16 April 2018 the applicants demanded that the respondent deliver a bank guarantee in the sum of $75,265. [21] The Defects Liability Period will expire on 13 June 2018. [22] Pursuant to clause 15(c) of the Contract, the respondent provided the two bank guarantees for the benefit of the applicant in lieu of retention under the Contract.2 Submissions [23] The applicants submit that it was an implied term of the Contract that any bank guarantees securing 2.5 per cent of the contract sum would not expire prior to the end of the Defects Liability Period. It is submitted that such an implied term is necessary in order to give the Contract business efficacy and is implied from the following facts: (a) The Schedule to the Contract states that the amount to be retained by the applicants is “5 per cent during construction (either with bank guarantee or cash withholding) then 2.5 per cent by bank guarantee (percentage of the amount due)”. This is consistent with an agreement that the applicants would have the benefit of a bank guarantee for 5 per cent of the Contract sum during construction and then, once practical completion was reached, they would have the benefit of a bank guarantee for 2.5 per cent of the Contract sum to secure the respondent’s obligations during the Defects Liability Period. (b) Clause 15(b) makes it clear that the applicants’ right to security is to “secure the performance of the respondent’s obligations under the Contract, including the respondent’s obligation to rectify defects”. Under clause 24, the respondent has an obligation to rectify defects throughout the Defects Liability Period. It follows that, in order to ensure that the respondents complied with its obligation to rectify defects, the applicants would need security that did not expire prior to the end of the Defects Liability Period. (c) Clause 15(d)(i) provides that, on the giving of bank guarantees to the applicants, the applicants were required to release any monies retained by them as security to the respondent. In the absence of the provision of bank guarantees by the respondent, the applicants were entitled to retain 2.5 per cent of the Contract sum in cash until the expiration of the Defects Liability Period (see clauses 15(d)(ii) and (iii)). The applicants submit that it could not have been the parties’ intention that the applicants were entitled to retain 2.5 per cent of the Contract sum in cash until the end of the Defects Liability Period but that any bank guarantee securing that same amount might expire prior to the end of that period. (d) Clause 15(d)(ii) contemplates the retention by the applicants of a bank guarantee securing 2.5 per cent of the Contract sum after practical completion. Clause 15(d)(iii) contemplates the release of that bank guarantee to the respondent at the expiration of the Defects Liability Period. It is submitted that this is consistent with an agreement that the applicants would have the benefit of a bank guarantee for 2.5 per 2 Affidavit of Mr Muggeridge, para 3 and “BM-2”, pp 61-62 and 65-66. -- 5 of 10 -- 6 cent of the Contract sum to secure the respondent’s obligations during the entire Defects Liability Period. [24] The respondent submits that there is no entitlement under the Contract for the applicants to be able to impose upon the respondent a positive obligation to provide them with a bank guarantee. [25] It is submitted that the applicant’s case is not supported by clause 15 as it was a matter of the Contractor’s discretion under clause 15(c) as to whether or not it provided a bank guarantee. If a bank guarantee was not so provided, the Owner was entitled to the retention as provided for under clause 15(a). [26] The respondent submits that as the applicants have paid the Contract sum they therefore do not have the ability to rely upon the security as envisaged by clause 15(a). [27] It follows, so the respondent submits, that with there being no entitlement to the same under the contract, the applicants fail at the first step when seeking the declaration the subject of this proceeding as they have not made out a prima facie case against the respondent in respect of the relief sought. [28] The respondent also submits that damages (which are denied) are also an adequate remedy in these circumstances and is therefore another reason why this application should fail. [29] Furthermore, the respondent submits that any application of this nature should have been brought prior to the expiry of the bank guarantee. [30] Finally, the respondent has submitted that some of the rectification work that the applicant seeks is specifically excluded under the terms of the contract (i.e. the installation of fly screens). Conclusion [31] For a term to be implied, the following conditions (which may overlap) must be satisfied: (a) it must be reasonable and equitable; (b) it must be necessary to give business efficacy to the contract; (c) it must be so obvious that “it goes without saying”; (d) it must be capable of clear expression; and (e) it must not contradict any express term of the contract.3 It is obvious that the parties intended that the applicants should have security for 2.5 per cent of the Contract sum in order to ensure that the respondent complied with its obligation to rectify defects. The parties cannot have intended that the applicants would be entitled to have security in the form of 2.5 per cent of the Contract sum in cash for the Defects Liability Period but not in the form of a bank guarantee. The contract would be illogical and unworkable if the applicants were left without security merely because the respondent chose one form of security over another. An implied term that any bank guarantee securing 2.5 per cent of the Contract sum would not expire to the end until the end of the Defects Liability Period is necessary in order to give business efficacy to the Contract. 3 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283. -- 6 of 10 -- 7 [32] In Queensland Nickel Pty Ltd (in liq) v Queensland Nickel Sales Pty Ltd & Ors, Bond J said4: “In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, French CJ and Nettle and Gordon JJ wrote (citations omitted): (46) The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. (47) In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable business person 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 or objects to be secured by the contract. (48) Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.” [33] In applying those principles to the present matter, it is clear that clause 15(a) and (b) provide that the owner may retain a certain sum of money that would otherwise be due to the contractor to secure the performance of the contractor’s obligations under the Contract, including the contractor’s obligation to rectify defects. That obligation to rectify defects continues until the end of the Defect Liability Period. [34] Clause 15(c) then provides to the contractor the discretionary power to give to the owner one or more bank guarantees, bonds or other valuable securities in replacement to or instead of any amount being held pursuant to the provisions of clause 15(a) and (b). [35] Whilst, in my view, clause 15 is unambiguous and is not susceptible of more than one meaning, I nevertheless note that the material reveals that the respondent specifically provided the two bank guarantees to cover the retention amount. In an email dated 8 January 2017 the director of the respondent said to the male applicant: “Just as a reminder, and for upcoming cash flow, I am organising bank guarantees to cover the retention amounts, these should be in place for the end of next month invoices. There will be two guarantees, each 2.5 per cent of the contract value, one until Practical Completion and another to cover the defects liability period. When I give you the guarantee, we will also ask for the cash amounts retained to be paid.”5 The material reveals that that is in fact what subsequently occurred. [36] The respondent has submitted that it was a matter for the respondent’s discretion under clause 15(c) as to whether or not it provided a bank guarantee and that if a bank 4 [2017] QSC 305 (15 December 2017) at [16]. 5 Exhibit BM-2 at page 54 to affidavit of Bruce Muggeridge filed with leave on 20 April 2018. -- 7 of 10 -- 8 guarantee was not so provided then the owner was entitled to the retention as provided for under clause 15(a). That submission is quite correct, however, taking into account the text and context of the contract there appears to me to be no doubt that it was an implied term that any bank guarantee must remain effective until the end of the Defects Liability Period. That would be the only conclusion that any reasonable business person would have understood the terms to mean and, given the material before the court, was clearly what the parties to this contract understood to mean at the relevant time. [37] Such an interpretation is reasonable and equitable, is necessary to give business efficacy, is so obvious that it goes without saying and does not contradict any express term of the Contract. [38] I conclude therefore that the respondent is in breach of that term. [39] The next question which arises for consideration is whether damages are an adequate remedy in the circumstances. [40] In the male applicant’s affidavit he relevantly says6: “(25) The relevant defects have now been identified in a quantity surveyor’s expert witness report dated 27 March 2018 provided by Richard Ray, quantity surveyor. Pages 2 [57]- [162] of “DB-1” is a true and correct copy of the quantity surveyor’s report by Richard Ray dated 27 March 2018. (26) Mr Richard Ray’s overall estimate of the defects rectification costs is in the order of $98,431.00 the most significant of which is the failure of tanking to the retaining walls and the hall and basement dealt with at paragraph 5.13 of Mr Richard Ray’s report. Mr Ray estimates the costs of rectifying this defect alone at $50,321.00. Mr Richard Ray’s report is qualified on the basis that the defects can be rectified adopting a particular method of repair. If that method is unsuccessful, I have been informed by Richard Ray and I verily believe his advice to be true and correct that the defect rectification cost will increase significantly. (27) Presently there are contracts of sale of units one, two, three, four and five of the property. Pages [163] to [295] of “DB- 1” is a true [sic] a correct copies of the contracts of sale for unit 1-5. (28) Some of the contracts are subject to building and pest inspections. The contract for unit one is subject to a special condition stipulating that the leak in the carpark must be fixed. (29) As at the date of swearing this my affidavit the respondent has failed and/or refused to provide a replacement bank guarantee pursuant to the Contract. (30) Further, as at the date of swearing this my affidavit the respondent has also failed and/or refused to attend the property to: (a) Rectify any part of the work that is defective; and 6 Affidavit of Dipjit Bose filed 17 April 2018 at [25]-[32]. -- 8 of 10 -- 9 (b) Complete any part of the works that is incomplete. (31) Absent the respondent taking immediate steps to address the defects in the units there is a prospect that the purchases will endeavour to bring these contracts to an end and the other units will not sell. (32) If these circumstances arise then, in turn, we will default on the construction loan we obtained for the construction of the units and this will cause our financier to take steps contrary to our interests by selling the units as mortgagee in possession and perfecting additional security over our other assets pursuant to the loan documents and selling our other properties.” [41] Given the content of those paragraphs it is apparent that damages would be an inadequate remedy because of the potential harm that may arise which would affect numerous people prior to any award for damages taking place. All such harm would be averted if the declaration which is sought were made. [42] There is no evidence before the court that suggests that the respondent would suffer inconvenience, injury or harm if the sought after declaration were made. [43] The respondent has also submitted that it is inequitable to make the order sought when the bank guarantees that were previously given have expired. It submits that any application of this nature should have occurred prior to the expiration of the second of those guarantees. I have some difficulty in understanding the logic of that submission, given that in my view it was an implied term of the contract that such a guarantee, if given, ought be in place to the end of the Defect Liability Period. Both parties agreed in submissions before me that the Defect Liability Period commenced later than expected due to the construction works taking longer than expected. The bank guarantee which had the expiry date of 29 March 2018 was provided on the understanding that that date would fall shortly after the end of the Defect Liability Period. Once it became apparent however that that period would extend beyond that date, there was a positive contractual responsibility on the respondent to provide a bank guarantee to cover the extended period of time. True it is that the applicants ought to have realised this at an earlier stage themselves, but that does not relieve the respondent of its responsibility under the Contract. [44] The applicants have also submitted that if the application is successful and the court makes the sought after declaration, then the respondent should be further ordered to comply with the declaration within three business days. The respondent has not suggested that such a timeframe is inappropriate although in that circumstance the respondent seeks that the court also order that the applicants not present the bank guarantee until they have given seven clear days’ notice of their intention to do so to the respondent. [45] Counsel for the respondent was unable to refer me to any head of power that would permit me to make such an order other than to submit that it would fall within the inherent jurisdiction of the court. Accepting that to be correct, I would nevertheless refrain from making such an order in the exercise of my discretion, given that no such notice was required pursuant to the Contract. On this point however I do note the provisions of clause 15(e) which would appear to be of continuing relevance. -- 9 of 10 -- 10 [46] Finally, the respondent’s submission that it is not contractually bound to perform some of the rectification work particularised by the applicant is irrelevant to the issue before the court in this application. Orders 1. It is declared that, pursuant to the written Contract between the applicants and the respondent dated 16 June 2016 (“the Contract”), the respondent is required to give a bank guarantee in the sum of $75,625.00 in the applicants’ favour to the applicants as security pursuant to clause 15 of the Contract. 2. The respondent specifically perform the Contract by giving a bank guarantee in the sum of $75,625.00 in the applicants’ favour (which shall not expire before 14 June 2018) to the applicants’ solicitor within three business days. 3. Unless written submissions to the contrary are received within seven days of the date of this order, the respondent is to pay the applicants’ costs of this application assessed on the standard basis. 4. The application is otherwise adjourned to a date to be fixed. -- 10 of 10 --