Cathstar Pty Ltd v Caloundra City Council [2006] QDC 417

DISTRICT COURT OF QUEENSLAND CITATION: Cathstar Pty Ltd v Caloundra City Council [2006] QDC 417 PARTIES: CATHSTAR PTY LTD Plaintiff V CALOUNDRA CITY COUNCIL Defendant FILE NO/S: D318/05 DIVISION: PROCEEDING: Trial ORIGINATING COURT: District Court, Maroochydore DELIVERED ON: 21 December 2006 DELIVERED AT: Brisbane HEARING DATE: 20 July 2006 JUDGE: McGill DCJ ORDER: Judgment that the defendant pay the plaintiff $54,520 including $7,520 interest CATCHWORDS: MONEY COUNTS – Money had and received – security bond – what obligations secured – whether obligations satisfied – liability to account BUILDING CONTROL AND TOWN PLANNING – Council approval – security bond provided – conditions of bond – whether satisfied – liability to account COUNSEL: T. C. Somers for the plaintiff E. J. Morzone for the defendant SOLICITORS: Sajen Legal for the plaintiff Heiner & Doyle for the defendant [1] On 3 October 2001 the plaintiff paid the defendant $50,000 as a bond. The plaintiff now wants this money back. The defendant, however, denies the plaintiff is entitled to recover that money, or indeed any part of it. Unfortunately, there is not common ground as to the basis on which the payment was made, except that it was a payment in order to secure the performance of somebody in relation to something, nor is there agreement as to whether any of the things which were required to be done and were secured by that payment have been done. -- 1 of 8 -- 2 Background [2] The matter proceeded in a somewhat unusual fashion, in that it was a trial on affidavits, not the way trials are usually conducted in this court. In this case, however, it was a convenient course, since most of the material in the affidavits filed was not contentious; in addition, a large bundle of documents was tendered by consent and became Exhibit 1. There was some cross-examination of Mr Stewart, the principal witness for the plaintiff. The background of this matter can, however, conveniently be taken from Mr Stewart’s affidavit, filed on 15 June 2006. [3] In about 1987, the plaintiff acquired a 50 per cent interest in a hotel and restaurant at Caloundra, the rest being owned by an insurance company. Later, the plaintiff acquired a number of adjoining properties, and a number of units in the motel complex. In 1998, it applied to the local authority, the defendant, for permission to make a material change of use in the property for a substantial development, extending to six storeys above ground. That proposed development was not consistent with the existing zoning for the land, and the application was refused. [4] In January 1999, the insurance company sold its interest in the property to Jackson Mobbs Nominees Pty Ltd, and that company also purchased a 50 per cent interest from the plaintiff in the adjoining property which had been purchased by the plaintiff. In about July 1999 a builder, acting in conjunction with the plaintiff, and the other owner, lodged a development application with the defendant for a revised proposal which was essentially just a residential development, which was consistent with the existing zoning of the land, and was approved by the defendant in October 1999. The building company started work on the project. [5] In October 1999, the plaintiff agreed with the building company and another company also associated with the individual behind the building company, Mr Bevacqua, to sell its interest in the property, on certain terms which included inter alia the plaintiff being able to acquire on favourable terms a lot in the new development. At that stage Mr Stewart intended to live in that part, but subsequently in mid 2000 he became interested in using that area as a restaurant. He understood that at that time a company Rolling Surf Development Company Pty Ltd had been set up in order to be the developer of the site, as a vehicle for the interests of Jackson Mobbs Nominees Pty Ltd and the companies associated with Mr Bevacqua. Mr Stewart did not want to be involved in the development approval for use of the premises as a restaurant, and left this to Rolling Surf Development Co Pty Ltd. That company lodged an application for material change of use for the restaurant with the defendant in about October 2000. [6] Subsequently, the relationship between Mr Stewart and Mr Bevacqua and the people behind Jackson Mobbs Nominees Pty Ltd deteriorated. I do not think it is necessary for the purpose of these proceedings to go into the basis of the deterioration, and in any case I have only Mr Stewart’s version of what occurred. It appears that as a consequence of this deterioration in June 2001 Mr Stewart agreed the plaintiff would pay to the others an amount in cash, and in addition would provide a $50,000 bond which the defendant required. Mr Stewart was told that a bond was required to secure the release of the title to lot 1 in the development, and his bond was to substitute for a bond which had been paid previously to the defendant by Rolling Surf Development Co Pty Ltd. -- 2 of 8 -- 3 The bonds [7] Before a plan of subdivision and community management statement for the new community titles scheme which was to be brought into existence as a result of the development could be registered, it was necessary for the defendant to consent. On 25 May 2001, a $50,000 cash bond was lodged by Rolling Surf Development Co Pty Ltd with the defendant in order to secure the defendant’s endorsement of consent for the registration of those documents. Payment was in the form of a cheque from that company, and was documented by the defendant as a security deposit (cash) 9968.9994: Exhibit 1 pp 174, 175. An internal document of the defendant noted that “a bond to the value of $50,000 was lodged as security to allow the release of the BF plan (bond reference FBG-00048 receipt no 116379).”: Exhibit 1 p 177. As a result of the payment, the defendant endorsed the survey plan and community management statement and they were returned by the defendant to Warwick Settree Surveys (presumably acting for the developer) under cover of a letter of 25 May 2001, which advised that the defendant’s development conditions had now been satisfied. [8] The survey plan was registered, and the area which was to be acquired by the plaintiff became lot 1 on survey plan 132434. Title to that lot was transferred to the plaintiff on 13 June 2004.1 On 3 October 2001, the plaintiff paid $50,000 to the defendant, which was documented by the defendant in the same way, as a security deposit (cash) 9968.9994: Exhibit 1 p 205. The following day a council officer advised another council officer that, as a replacement bond had been lodged, the bond lodged previously by Rolling Surf Development Co Pty Ltd could be returned, and sought a cheque for that purpose: p 207. Such a cheque was forwarded under cover of a letter dated 10 October 2001: p 208. [9] On 31 July 2001 an officer of the defendant, Mr Coffey, conducted an inspection of the development, a standard inspection in connection to the request for council endorsement of a plan of survey. His recollection in 2006 was that at the time of that inspection, construction of the resort proper was complete but the restaurant was still under construction.2 [10] The unsatisfactory feature of this case is that there is no documentation prior to the payment of either of the amounts of $50,000 as to exactly what that payment was to be for. Simply to describe it as a security deposit is meaningless, without some identification on what it was that the payment was to secure. The contemporaneous evidence suggests that the payment by the developer was made in order to procure the approval of the survey plan and the documents necessary to enable it to be registered, but the evidence also indicates that this was not simply a cash payment to the defendant for the defendant to keep. Rather, the payment was to provide the defendant with a fund which could be called on if required if somebody, presumably the developer, failed to comply with any outstanding obligations which ought in theory to have been completed prior to the time when the plan of survey was approved by the defendant. 1 This is alleged in the defence paragraph 7, and not denied in the reply, though I suspect the year should read “2001”. 2 Affidavit of Coffey filed 12 July 2006. -- 3 of 8 -- 4 [11] One of the advantages of the requirement of the statute of frauds that a guarantee be in writing, or that there be some note or memorandum of it in writing, is that at least there is a documented statement of what it is that the guarantor is guaranteeing. In the same way, when money is paid under a building contract to secure performance of the contract, or money is retained to secure rectification of defects, there will be a contract in writing which will identify what obligation is being secured. If a payment is made in the present circumstances to secure the performance of some obligation otherwise identified, there is no requirement for writing, and that can give (and in this case has given) rise to difficulties identifying just what it is that the payment is to secure. [12] What I do have is some correspondence from the defendant after the $50,000 payment was made on 25 May 2001. This is not the best source of information about the terms on which that payment was made. Prima facie it was a matter for the payer to identify the terms on which the payment was made; if the payee was not prepared to accept payment on those terms, the payee was free to return it. There is nothing from the payer in this case, Rolling Surf Development Co Pty Ltd, at or before the time the $50,000 payment was made to the defendant to identify just what it was that that payment was to secure. That is unfortunate. [13] What I do have is a facsimile of 4 July 2001 from the defendant to the building company in which an officer of the council purported to “confirm the purpose of the” $50,000 bond. It continued: “The bond was lodged to allow the early release of the Building Format Plan for the Rolling Surf development. At the time construction had not been completed on the proposed restaurant and some associated works (landscaping etc). A general inspection was carried out by officers from the Growth Management Unit of Council at this time but no specific inspections (planning, engineering, landscaping etc) were carried out other than that of Country & Coastal Certifiers (Council’s Building Section). The other inspections were not carried out at this time as a result of the lodgement of the uncompleted works bond. These inspections were to be carried out when the development was fully completed. Therefore, when the development is fully completed the applicant should notify Council to carry out all the necessary inspections. The bond will be released following the inspections being carried out if it is determined that the development has been completed in accordance with all development approvals.” [14] This letter is evidence against the council that the bond was held on such terms, but it is not necessarily conclusive of the terms on which the bond was held. It seems to be, however, the closest that I have to some contemporaneous record of the understanding of the defendant as to the purpose of the payment of the bond. [15] On 11 July 2001 Mr Stewart sent a letter by facsimile to Mr Bevacqua reporting that he had been advised by the council that the bond was to cover various outstanding issues for the whole of the Rolling Surf project, and suggesting that he arrange an inspection: p 316. He confirmed that the plaintiff was “willing to pay any bond required by the Council in regards the construction of the restaurant, providing the conditions of the bond are acceptable and within our power to complete to Council satisfaction. Please advise us when all of the other (non-restaurant) outstanding -- 4 of 8 -- 5 matters have been inspected and approved by Council so that we can organise the immediate and necessary steps for the transfer of any restaurant construction bond to Cathstar Pty Ltd.” [16] It appears from internal memoranda of the defendant that the developer or the builder responded with a request that the defendant carry out the inspections for the remainder of the development, apart from the restaurant: p 197. Evidently this was done, and the defendant wrote on 22 August 2001 to Rolling Surf Development Co Pty Ltd and referred to the bond “currently held by Council as security for uncompleted works for the above development” and advised that inspections had identified seven matters as amounting to non-compliance. In respect of three of these, for one reason or another no further action was required, but four of them were required to be rectified. The letter continued: “Following the completion of items (a) to (d) Council would be prepared to provide a letter to the effect that all works are completed on the Rolling Surf Development except those associated with the restaurant (lot 1 SP 132434). These works include any remaining external works including the completion of the footpath in Levuka Avenue and landscaping etc. A bond to the value of $50,000 will be required to secure uncompleted works associated with the restaurant. Council would be prepared to substitute the current bond accordingly.” [17] On 3 September 2001 the defendant wrote to Rolling Surf Development Co Pty Ltd, referring to the previous letter and a subsequent site inspection which confirmed that the works associated with items (a) to (d) in the earlier letter had been satisfied, though the external works required for the restaurant (eg landscaping, footpath construction) had not yet been completed. It reiterated that “a bond to the value of $50,000 can be provided to Council to secure those uncompleted works associated with the Rolling Surf Restaurant, and accordingly substitute the current bond.” [18] Mr Stewart said he was provided with a copy of that letter by Mr Bevacqua prior to the payment by the plaintiff of the $50,000 in October 2001. Mr Stewart said that, on the basis of this letter, he believed these were the only matters required to be completed and be secured by the bond that he was to be providing. He continued: “If I had been aware of any other conditions I would not have paid the bond.”3 [19] Indeed, Mr Stewart said that he had the letter of 3 September with him when he went to the defendant’s office and made the payment of $50,000, and showed the letter to the officer who took the payment.4 Subsequent events [20] Subsequently the relationship between Mr Stewart and Mr Bevacqua and his company deteriorated further, and the plaintiff had other contractors complete the work on the restaurant. In late November 2001 the defendant conducted its final inspection of the restaurant and issued a final building inspection for it. In February 2002 the plaintiff requested the refund of the bond: p 209. The defendant in 3 Affidavit of Stewart para 102. 4 Affidavit of Stewart para 111. -- 5 of 8 -- 6 response advised by letter of 28 February 2002 (Exhibit 1 p 210) referring to conditions 17 and 18 in the development permit for the restaurant issued on 13 June 2001. Conditions 17 and 18 of this permit required payment of contributions to water supply headworks and sewerage supply headworks at a rate fixed annually and applicable at the time when the contribution was paid. Mr Stewart said that he understood that these payments were made by the development company, or Mr Bevacqua’s company, because when he had been settling accounts with them in respect of work done in relation to lot 1, the amounts they were claiming included payment of such contributions.5 [21] The next step was a further letter from the defendant to the plaintiff of 20 March 2002 (p 212), which repeated the demand for payment of headworks charges in respect of water supply and sewerage and added a demand for compliance with condition 2 of the change of use approval for the restaurant of 13 June 2001, namely provision of onsite parking to accommodate two vehicles marked for use by restaurant staff only. In addition, there was a statement that an inspection of the site had revealed that a hydrant and a manhole had been covered over as a result of development works. It was said that this infrastructure was required to be located and raised. The position set out in this letter was reflected in the defence of the defendant; para 11 alleged that these conditions had not been completed or complied with, and that subject to completion of this action the defendant intended to apply the bond in satisfaction of those obligations. Analysis [22] In my opinion, it is not necessary for me to determine with precision the terms on which the bond lodged by the developer was held. What matters is the terms on which the plaintiff’s bond is held. Mr Stewart was not challenged in cross-examination on his version of the circumstances under which he came to make a payment of $50,000 to the defendant, and I accept his evidence in relation to it. On the basis of that evidence, what he was tendering to the Council was the $50,000 bond sought by the Council in its letter of 3 September 2001. This was in terms “a bond to the value of $50,000 … to secure those uncompleted works associated with the Rolling Surf Restaurant.” The reference to “those uncompleted works” in my opinion it is a reference to what had been said in the previous paragraph where it was noted that “the external works required for the Rolling Surf Restaurant (eg landscaping, footpath construction) have not yet been completed.” In the context of this letter, this was obviously a reference to construction works, the sort of thing apparent in the photograph taken by Mr Coffey.6 Based on that letter, therefore, the bond sought by the defendant was one to secure the completion of the external construction works required for the Rolling Surf Restaurant. The $50,000 payment was made to the defendant by the plaintiff for that purpose, and it was accepted by the defendant. The defendant treated it as sufficient to justify releasing the earlier bond to the developer. In these circumstances, the defendant must be treated as having accepted the payment on the basis on which it was tendered. [23] In these circumstances, no question of estoppel arises. It is a matter of identifying the terms on which the payment was made. In the light of the evidence, it was made 5 Affidavit of Stewart para 62, 66. 6 Affidavit of Coffey Exhibit A. This was taken on 31 July 2001; no doubt the work was more advanced by 3 September 2001: see Stewart transcript p 12 lines 57-8. -- 6 of 8 -- 7 on the terms set out in the letter of 3 September 2001. Accordingly, the bond is to secure the obligations identified in that letter, and no others. There is nothing in that letter about the conditions of development approval, or headworks contributions. This was not a bond to secure the conditions of the development approval for the restaurant, or at least conditions 2, 17 and 18.7 Accordingly, the matters referred to as “outstanding conditions” in subparagraph 11(ii) of the defence were never conditions of the bond. They are therefore not outstanding conditions. Indeed, if the defendant’s argument were correct, and the bond secured the performance of all the conditions of the development approval of the restaurant, it would never be repayable because some of the conditions, such as the condition about the parking spaces, are of a continuing nature, so that a point would never be reached when it could be said that all conditions had finally been complied with, so that the bond would be repayable. Such an interpretation would not readily be adopted for an informal commercial arrangement. [24] On the other hand, it is clear that the conditions of the bond extended to satisfactory completion of footpath work. The defendant has asserted that the footpath works have not been satisfactorily completed, and that is admitted in paragraph 8 of the reply. The plaintiff’s response was that that allegation failed to raise a defence to the plaintiff’s claim. I am not, however, persuaded that that is so. One of the things the bond was to secure was the satisfactory completion of the footpath works, and since in this respect the footpath works have not been satisfactorily completed, that remains something that the bond still secures. There is not much evidence about the significance of covering the hydrant, but on the face of it that sounds to me like something which ought not to be done in the course of carrying out works involving a footpath. Accordingly, I find that in this respect there was a failure to complete the footpath works satisfactorily. [25] The question is what flows from that. I do not think that it follows that the plaintiff is simply deprived of any remedy. The matter is perhaps complicated by the fact that there is some evidence that work of this nature can at least now only be done by the defendant.8 The only evidence about the cost of doing the work is an estimate of $3,000 from the defendant’s engineer.9 His evidence is somewhat vague, but in the absence of any other evidence I find that that is the cost of doing the work. [26] The defendant has known about this situation since March 2002, because the covering of the hydrant was one of the matters referred to in the letter of 20 March 2002. Although the defendant’s engineer expressed some concern about the covering of the hydrant,10 it does not seem that that concern was sufficiently serious, or sufficiently widespread within the defendant, to justify the defendant’s actually doing anything about it in the four years which have followed. I do not think that the defendant can be entitled simply to sit on the plaintiff’s bond indefinitely on the basis that there is a small piece of work which only it can do, but which it is not doing and has not done. 7 There may have been conditions of the restaurant approval relating to external works such as landscaping and the footpath, which would have been secured. 8 Affidavit of Mrs Stewart sworn 20 July 2006. Presumably if the defect had been noticed at the time the plaintiff’s contractor (or the builder) was still working on the footpath, it could have been then rectified by that contractor. 9 Affidavit of Willey filed 12 July 2006. 10 Affidavit of Willey para 11. -- 7 of 8 -- 8 [27] There was of course nothing in the terms on which the payment was made as to any time limit within which any rectification work or other resolution of any issue arising in respect of the bond was to be completed. If anything is to be implied in such circumstances, it is that whatever is to be done is to be done within a reasonable time. A reasonable time for completing this work has passed. Apart from that, now that an action has been brought to recover the moneys, if and insofar as there is any valid claim against them on the part of the defendant, in my opinion now it is the time for that claim to crystallise. Accordingly, I do not accept that it is the true legal position that just because the defendant can identify some aspect of the construction work which has not been satisfactory, the defendant is entitled to retain the whole bond, presumably indefinitely. In my opinion, the true position is that an appropriate allowance to cover that work is to be deducted and judgment is to be given for the plaintiff for the balance of the bond. [28] I have not been cited any authority on this point by either counsel, and have not been able to find any myself.11 This seems to be an area in which there is not a lot of authority, or at least an area where relevant law is not readily accessible. I am not going to postpone dealing with this matter further. In the absence of relevant authority on the point, I will decide the point on the basis of general principle. [29] It was submitted on behalf of the defendant that the plaintiff remains liable anyway, apart from the bond, to satisfy the development conditions of the restaurant. However, I am not concerned in these proceedings with that issue, except insofar as it is asserted that one of the things secured by this bond was satisfaction of those development conditions. I have rejected that assertion, and in those circumstances the issue is simply irrelevant. There is no counter-claim or set-off raised by the defendant seeking to recover any amount on the basis that it is payable in any other way. It is unnecessary for me to decide therefore whether there is any and what amount payable in respect of the development conditions, or whether the defendant is entitled to any other remedy against the plaintiff in relation to them. Those issues simply do not arise in this action. [30] Accordingly, in my opinion the plaintiff is entitled to recover the amount of the bond less the cost of doing the one piece of work proved to be still outstanding and secured by it. That leaves a balance of $47,000. I will also allow interest on that amount, under the Supreme Court Act 1995, but limited to a period of two years; that period is determined essentially on the basis that the defendant was entitled to a reasonable time after identifying the deficiency in March 2002 to carry out the rectification work, but after the expiration of that reasonable time the balance of the bond should have been returned to the plaintiff. If that had been done, the plaintiff would have received the balance back in the order of two years ago. I will allow interest at 8 per cent per annum. Interest therefore comes to $7,520. [31] I therefore give judgment that the defendant pay the plaintiff $54,520 including $7,520 by way of interest. Unless another order is appropriate, I will order the defendant to pay the plaintiff’s costs of the action to be assessed. 11 Although I do draw some comfort from Cargill International SA v Bangladesh Sugar and Food Industries Corporation [1998] 1 WLR 461 at 465. -- 8 of 8 --