A/asian Conference Association Ltd v Mainline Constructions Pty Ltd

A/asian Conference Association Ltd v Mainline Constructions Pty Ltd - [1978] HCA 45 - HCA 1978 case summary — Zoe

[7]

The concluding words of cl. 22 (c) (ii) create a real difficulty of construction, and the argument that they were intended to provide the exclusive method by which the appellant should be reimbursed for payments made to sub-contractors is not without force. However the provisions of cl. 22 (c) (iv) in my opinion lead to a different conclusion. That clause provides, inter alia, that "as soon as is reasonable" after the completion of the works, "the Architect shall ascertain the amount of costs properly incurred by the Proprietor and the amount of any direct loss and/or damage caused to the Proprietor by the determination and any other liability of the Builder to the Proprietor under this Contract and shall certify all of the same and if such aforesaid amounts when added to the moneys paid to the Builder before the date of determination result in a total amount in excess of that which would have been otherwise payable under this Contract the difference shall be a debt payable to the Proprietor by the Builder; and if the said amounts when added to the said monies result in a lesser total than that which the Proprietor would otherwise have been required to pay under this Contract, then the difference shall be a debt payable by the Proprietor to the Builder". I have already expressed the view that a payment made by the appellant under cl. 22 (c) (ii) is intended to be made at Mainline's expense, and that the payment creates a liability of Mainline to the appellant. Clause 22 (c) (iv) then provides that the liability is to be brought into the account in favour of the proprietor, so that, if the case requires, the liability will result in a debt being owed by Mainline to the appellant. The provisions of cl. 22 (c) (ii) may be reconciled with those of cl. 22 (c) (iv) by regarding the clauses as providing for different and cumulative remedies, even if, on that view, some words of cl. 22 (c) (ii) are otiose. But if there is a conflict between them, it should be resolved by giving effect to cl. 22 (c) (iv), and thus avoiding the quite irrational result that payments authorized by the contract could only be recovered by the appellant if sums happened to be due by it to Mainline.

[9]

I must now deal with the argument advanced by counsel for the Bank in reliance on the decision in Barclays Bank Ltd. v. Quistclose Investments Ltd. [8] . That case is authority for the proposition that where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust. In the present case it was submitted not that a trust was created, but that there was a contract express or implied between the appellant and the Bank that so much of the money as was not spent in the discharge of the obligations of Mainline would be refunded to the Bank. However there was no evidence from which it can be concluded that it was intended that the money should not form part of the general assets of Mainline. There was no requirement that it should be kept in a separate fund; in this report the provisions under which the security was given - those of cl. 30 (c) - may be contrasted with those of cl. 30 (d) which require the retention fund to be paid to an interest bearing deposit in joint names, the amount of which was to be held on trust. Further, the obligations of Mainline under the contract were various, and the likely amount of Mainline's final liability to the appellant was quite unknown when the guarantee was given. The payment by the Bank was not a provisional payment, or a payment on account; the money was provided as a security and was used for that purpose. In all these circumstances it should be concluded that the intention of the parties to the guarantee was that the money was to form part of the general assets of the appellant, to be used as it wished, subject only to an obligation to account (to Mainline) for any surplus. No stipulation to repay the money to the Bank can be implied.

[12]

There is no doubt that upon the proper construction of cl. 22 (c) (ii) and (iv) a payment by the appellant to any sub-contractor must be made within a reasonable time after the completion of the works, and the certificate of the architect was also required to be made as soon as was reasonable after completion. What is a reasonable time is a question of fact. It may safely be concluded that these questions were not considered at first instance - there is no mention of them in the judgment of Bowen C.J. in Eq., or in the notice of appeal to the Court of Appeal, and Hutley J.A. records that they were not adverted to in oral argument. Thus the question whether the three documents dated 30th January 1975 amounted to a certificate within cl. 22 (c) (iv) was never explored; they are not so described in evidence or on their face. If in conjunction they did constitute a certificate, they certified as to the amount payable to the sub-contractors, although that amount had not been paid. Similarly the question whether a reasonable time for payment had expired was never examined. The money was received by the appellant on 13th January 1975. It appears that the amounts payable to the sub-contractors were known before that date. The first letter seeking the concurrence of the liquidators to the payment, and advising that an application would be made to the Court if they did not concur, was written on 14th April 1975. In the circumstances it was reasonable for the appellant to seek the concurrence of the other parties, or of the Court, before making these substantial payments, and if a reasonable time had not elapsed on 14th April 1975 the lapse of time thereafter could hardly be relied on by those parties who asserted that it was too late to make the payments. There is no evidence as to what, if anything, was done between 13th January and 14th April 1975. These questions were such that relevant evidence might have been given in relation to them had they been raised at the trial, and conformably with settled principle it would not be right for an appellate court to make its own findings upon them adversely to the appellant. The ground on which Hutley J.A. determined the appeal should not in my opinion be supported.

[22]

That what I have just described is indeed the true character of this guarantee fund appears from the terms of the contract. The so-called bank guarantee happens to be no more than an unconditional undertaking by the Bank to pay to the proprietor on demand up to the maximum sum of $126,140: however it appears on its face to have been given at the builder's request in consideration of the proprietor dispensing with the retention fund under the building contract and is to be understood in light of those terms of the contract which describe its function. The first of these is cl. 30 (c), in which the bank guarantee or other security which the builder may provide is described as being "effective as security in lieu of the Retention Fund". This use of the term "security" is explained by par. (a) of cl. 30, read in conjunction with pars. (d), (f), (g) and (h) of that clause. In cl. 30 (a) the retention fund itself is described as being retained by the proprietor "as security that the Builder shall carry out his obligations under this Contract" and when cl. 30 (c) refers to a bank guarantee as being "effective as security", it is as security that the builder's contractual obligations are carried out that it is to be effective. Later paragraphs of cl. 30, which (together with others relating to payment over of half the retention fund to the builder, or reduction of the substituted bank guarantee to one half of its original amount, upon practical completion of the building, to which paragraphs, for brevity, I do not further refer) are set out in other judgments, show the nature of the benefit to the proprietor of having a retention fund. If amounting to more than $4,000 it is held in trust for him: cl. 30 (d); if less than $4,000, although held in trust for the builder, it is available to the proprietor as a source for payment of amounts which he becomes entitled to deduct from sums due or to become due to the builder: cl. 30 (g). In either event it is to be taken into account - cl. 30 (f) - in determining the amount of the final certificate showing the balance finally payable by the proprietor to the builder: cl. 31 (e). However it never becomes available to the proprietor in simple diminution of the adjusted contract sum payable for the doing of the building work. It always remains a part of the price to be paid to the builder, although available for recourse by the proprietor if some deduction from the builder's full entitlement is warranted.

[28]

One further aspect of the contract calls for mention. Clause 31 (j) contemplates the eventual release to the builder of a security provided in lieu of retention fund, as does cl. 30 (h). It was sought to say that these provisions for release of security to the builder might affect the right of the bank to the return of the balance of the guarantee fund remaining after satisfying the proprietor's claim to $388. In my view it has no such effect in the present case. The contract left it open to the parties to fix upon "any form of security acceptable to the Proprietor" as a substitute for the retention fund: cl. 30 (c), and had they determined upon a type of security which did not involve a third party, the Bank, this provision for release, like much else in this case, might have borne a different complexion. However, in the outcome something in the nature of a guarantee by a third party was agreed upon as the security and the terms of the so-called bank guarantee, read in the light of the provisions of the contract, plainly put the Bank in the position of guarantor. The proprietor having availed itself of the guarantee fund to the extent of $388, the balance of the guarantee fund, now unnecessary for the purposes for which it was furnished, must be returned from whence it came, neither the proprietor nor the builder having any claim to it. Although the whole of the guarantee fund had, pursuant to the terms of the bank guarantee, to be paid over by the Bank to the proprietor when demanded, once it had served its purpose, as it did by providing a source of the $388 due to the proprietor, only the Bank can be entitled to the balance. Whether its remedy would, despite the contract's references to release to the builder, lie in an action against the proprietor for an account or for breach of an implied term of the contract of guarantee, or for relief as an incident of its character of surety or would involve both the proprietor and the builder, the former being obliged to pay over the latter, which would hold what it received on trust for the Bank, does not matter: in no event can that balance be treated by the proprietor as other than a fund to which the Bank is solely entitled. So regarded, references to the release of the security to the builder are of no practical significance.

[95]

The critical question is whether the moneys paid under the bank guarantee can be regarded as an amount "due or to become due to the Builder" within the meaning of cl. 22 (c) (ii). Clause 22 (c) (iv) deals with ultimate accounting where the employment has been terminated and under it the architects are to ascertain "the amount of costs properly incurred by the Proprietor pursuant to the said paragraph" [par. (i)] "and the amount of any direct loss and/or damage caused to the Proprietor by the determination and any other liability of the Builder to the Proprietor under this Contract and shall certify all of the same", and provides that the architects shall ascertain whether such sum together with amounts previously paid to the builder exceeds or is less than the amount which the proprietor "would otherwise have been required to pay under this Contract", i.e. the balance of the adjusted contract price. They are thus to ascertain the balance that is to be paid by the proprietor or the builder as the case may be. It appears to me that the two "documents" of 30th January 1975 are the result of that process under cl. 22 (c) (iv), though they do not use the word "certify". They ascertain the cost to the proprietor of completion of the works and ascertain the excess over what would otherwise have been payable, i.e. $388.24. The result of that calculation is therefore that there is no amount to become due to the builder under cl. 22 itself. This calculation is the equivalent of the preparation of a final certificate under cl. 31 which also ascertains the amount due to the proprietor or the builder as the case may be. Only by that process is any amount due to the builder ascertained and so also under cl. 22. Under cl. 31 the manner of dealing with the retention fund or the security follows after the conclusion of that process. It appears that the amounts which were due to sub-contractors (other than nominated sub-contractors) at the date of termination had not been paid to them by the proprietor. It is, however, common ground that those amounts had been included in architects' certificates issued prior to 11th September 1974 and paid by the proprietor to the builder. In fact, the proprietor has not paid those sub-contractors, but the summons asks whether it "is entitled to pay to the sub-contractors $116,259.90 out of the retention fund held by [it]". More properly expressed, the question would seem to be whether it is entitled to recoup itself out of the guarantee moneys for amounts paid to sub-contractors.

[97]

In a case where there was a retention fund properly so-called, there would be a basis for arguing that the amount of the retention fund was "due or to become due to the Builder". Even this is not strictly accurate, because the accounting for the retention fund requires all payments either way to be made before the fund is released. The fund is held in a joint account in the names of the proprietor and the builder on trust for the proprietor, but cl. 31 produces the result that the retention fund is "released" by the proprietor to the builder as a whole after all adjustments have been made. There is no express provision dealing with how the retention fund is to be dealt with in the case of termination of the builder's employment, but it could properly be described as an amount due or to become due to the builder. It is after all part of the contract price to which the builder in the ordinary way would become entitled if the contract ran its full length and must be taken into account in ascertaining what "would have been otherwise payable under this Contract" for the purposes of the accounting required under cl. 22 (c) (iv). In that context it would be appropriate to regard it as an amount "due or to become due" to the builder. There are, however, other possible situations where notwithstanding the termination of the employment of the builder there may be amounts due or to become due to it. I assume for present purposes that amounts in architects' certificates which are overdue for payment would cease to be payable by virtue of cl. 22 (c) (iv), and enter into the accounting only as reducing the cost to the proprietor of completing the works and as part of what would otherwise have been payable. In a case where the retention fund is less than $4,000.00, it would be an amount due or to become due to the builder and would be available for recoupment of payments to sub-contractors. Neither a security itself, nor the proceeds of realizing a security (whether by demand on the guarantor for payment or by sale of property charged) can be regarded in any sense as "moneys due and payable to the Builder". In so far as such moneys may be found to be in excess of the loss or damage suffered by the proprietor the balance would be payable to the surety itself, whatever the rights and duties might be as between the surety and the builder. A guarantee properly so-called is of the same character; only the amount of the loss is payable by the guarantor, and any "unused" amount up to the limit of the guarantee would be "retained" by the guarantor, or more accurately, not paid over. There would be no basis on which that could be demanded by the proprietor nor could it be regarded as payable to the builder. A security in the form of a written promise by a third party to pay up to a stated amount would be in exactly the same position. However, if the builder itself were to give a charge over its own property to serve as security, and if recourse to that security by exercise of a power of sale by the proprietor produced a sum in excess of that required to meet its loss or damage, any balance remaining might be described as "due or to become due to the Builder" and as such be available to reimburse the proprietor for payment of sub-contractors.

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