Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Practice and procedure - Summary judgment - Conditional leave to defend - Whether master erred in refusing summary judgment - Turns on own facts

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552

Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256

Central Petroleum Ltd v Century Energy Services Pty Ltd [2011] WASC 211

Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458

Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

FE Cleary & Sons Pty Ltd v Buckland Building Group Pty Ltd (Unreported, NSWCA, 12 February 1976)

Gordon v Cradock [1963] 2 All ER 121

Lucas Drilling Pty Ltd v Armour Energy Ltd [2013] QCA 111

1 JUDGMENT OF THE COURT: This is an appeal from a decision of Master Sanderson who refused the appellant's application for summary judgment and granted the respondent leave to defend the action, conditional upon the respondent paying into court the full amount of the appellant's claim, an amount of $831,347.10.

2 The appellant contends, in effect, that the master erred in refusing the application for summary judgment. It maintains that it is clear the respondent has no defence to the claim. For the following reasons, we would dismiss the appeal.

3 In its statement of claim, the appellant pleads (relevantly) that the respondent entered into a head contract with a Rio Tinto joint venture for the construction of the Marandoo Explosives Compound (MEC). It alleges that, on about 5 April 2012, the respondent entered into a sub-contract with the appellant pursuant to which the appellant was to carry out certain earthworks, road works and stormwater drainage work on the MEC.

4 The sub-contract, which the appellant says was wholly in writing, is alleged to be made up of a purchase order dated 30 November 2011, which was varied and initialled on behalf of the respondent on 5 April 2012, and a number of emails and their attachments referred to in the purchase order. It is pleaded that the sub-contract price was $8,313,471.10, excluding GST.

5 The appellant alleges that it was an express term of the sub-contract that:

(a) the appellant would provide to the respondent two bank guarantees, each one being for 5% of the contract sum; and

(b) one of the bank guarantees was to be returned to the appellant upon practical completion of the sub-contract works and the other was to be returned on 30 June 2013.

6 It is alleged that there were no express terms of the sub-contract governing the circumstances in which the respondent was entitled to have recourse to the bank guarantees, but it was an implied term that the respondent could not do so in circumstances where the respondent was no longer entitled to hold the bank guarantees.

7 On 19 June 2012, the appellant provided the respondent with two bank guarantees, each in the sum of $415,673.55.

8 The appellant alleges that practical completion of the sub-contract works occurred in or about February 2013. It pleads that the respondent failed to return the bank guarantees as required under the sub-contract but instead, on or about 9 December 2013, drew down on the bank guarantees and thereby converted to its own use and benefit the total sum of $831,347.10. The appellant claims that sum and, in addition, damages in respect of additional financing costs it alleges it has incurred as a result of the respondent drawing down on the bank guarantees.

9 On 18 December 2013, the appellant applied for summary judgment. The respondent had not pleaded to the statement of claim at that point and did not do so afterwards in light of the summary judgment application: Rules of the Supreme Court 1971 (WA), O 20 r 4(2).

10 The application for summary judgment was supported by an affidavit of a director of the appellant, Mr Dropulich. The affidavit, with its voluminous attachments, ran to a total of 548 pages. The attachments included emails and attachments to those emails, exchanged between the parties over a period of some 12 months. The emails and their attachments took up some 447 pages.

11 Affidavits of rather more modest proportions were filed by the respondent in opposition to the application.

12 Mr Dropulich verified the matters pleaded in the statement of claim in his affidavit in support of the summary judgment application. He attached to the affidavit the varied purchase order and the emails and attachments referred to in it, which are said to comprise the subcontract. It is appropriate to refer to some of that correspondence to illustrate the nature of it.

13 It commenced with an email of 15 April 2011, in which the respondent stated that it was tendering on the construction of the MEC and invited the appellant to tender for part of the work, involving earthworks, road works and stormwater drainage work. The appellant was told that if it wished to tender it was required to provide tender pricing by 9 May 2011. We should note that the respondent says that there was also attached to the email a scope of work document which, among other things, provided for 10% of the contract price to be retained by the respondent until all documentation had been received and approved by both the respondent and the principal.

14 Several further emails were subsequently sent by the respondent to the appellant in relation to the work.

15 On 16 May 2011, the appellant provided its tender, attached to an email of that date. The tender price, including GST, was $5,763,676.33. Express qualifications to the tender included that '[the appellant] would require negotiating a mutually agreeable commencement date and time for completion'.

16 The respondent, by Mr Zanotti, responded by email later the same day. It is item 16 of this email that is alleged by the appellant to constitute the express term of the contract dealing with the return of the bank guarantees. In the email, Mr Zanotti said (relevantly):

Thanks for your offer. As discussed I want to talk about the following issues:

...

1. Methodology during construction. To that end please find attached our preliminary construction schedule ...

1. The cost of 2 x 5% Bank Guarantees. 1 returned at PC and 1 returned at 30/06/2013.

17 The respondent's preliminary construction schedule which was attached to the email provided for a commencement date of the construction of the MEC of 1 August 2011 and a completion date of 28 May 2012. The affidavit evidence does not disclose the content of the discussions preceding the affidavit or of any discussions following it.

18 On 17 May 2011, the appellant sent to the respondent by email a further tender submission in the total sum of $8,449,020.37.

19 On 18 May 2011, the respondent, by Mr Zanotti, wrote by email to the appellant to request, among other things, a 'brief construction schedule' and confirmation that the appellant had included the cost of the bank guarantees in its tender price.

20 Later that day, Mr Zanotti sent another email to the appellant in which he referred to discussions earlier in the day and, among a number of other matters in relation to the work, asked the appellant to '[a]mend [its] price to adjust the Bank Guarantees to 2 x 2.5%'. The content of the discussions preceding the email was not disclosed in the affidavits before the master.

21 The following day, 19 May 2011, the appellant responded by email, to which was attached a revised tender submission with a tender price of $9,078,799.95.

22 Later on 19 May 2011, the appellant sent an email to the respondent in which the appellant confirmed that the respondent's construction schedule was acceptable to the appellant.

23 A number of emails then passed between the parties in relation to details of the tender.

24 On 19 October 2011, apparently following a telephone conversation, the appellant wrote to the respondent confirming that the appellant was interested in carrying out the work and attaching a revised price in the sum of $9,510,545.15. It was indicated by counsel on the appeal that confirmation had been sought by the respondent because of a substantial hiatus in finalisation of the subcontract due to delays in the negotiation of the head contract.

25 A purchase order, dated 30 November 2011, was subsequently sent by the respondent to the appellant. The purchase order stated:

Please supply the following goods/materials and/or services as detailed below:

For the completion of bulk earthworks for the Marandoo Site as per the following documentation:

[There are then listed 19 emails passing between the appellant and the respondent between 15 April 2011 and 24 November 2011, including the emails mentioned above.]

26 On 9 March 2012, the respondent wrote by email to the appellant to say that the respondent had agreed with the principal 'that we will target an on site start date of 7 May 2012'. The respondent went on to set out a list of 15 items by way of amendments to the appellant's scope of work, one of which was to 'discuss with [the respondent] a detailed construction programme' and in that connection the appellant was referred to the respondent's existing programme with a start date of 7 May 2012. The appellant was invited either to add its own programme into the respondent's existing programme or to generate one of its own.

27 On 5 April 2012, the respondent sent an email to the appellant to which was attached a copy of the respondent's original purchase order dated 30 November 2011. In the email, the respondent said that it had updated the purchase order by an attached 'Fixed Price and Rates Summary' and the inclusion of nine emails passing between the parties between 9 March 2012 and 5 April 2012, which it listed. As mentioned earlier, the original purchase order listed 19 emails passing between the parties between 15 April 2011 and 24 November 2011. The varied purchase order thus incorporated a total of 28 emails and their respective attachments.

28 It appears from the email correspondence that, on 26 June 2012, there was a discussion between representatives of the parties about the bank guarantees. In a subsequent email on 26 June 2012, Mr Griffiths of the respondent confirmed that the bank guarantees apparently then proposed by the appellant were acceptable, apart from the (undisclosed) amount. He referred the appellant to the respondent's email of 16 May 2011 and said the respondent required two bank guarantees, each one representing 5% of the contract value.

29 Later that day, the appellant's chief financial officer, Mr Singh, sent an email to the respondent to which was attached copies of two bank guarantees. In the email Mr Singh said:

I have attached the Marandoo BG on this email and you will notice that it provides for two 5% BG at contract value, one for the 'Defects Period' and another.

30 The bank guarantees were on a printed form. Both were dated 19 June 2012 and were in the same terms. In the space provided for details of the agreement giving rise to the guarantee, the words 'Marandoo Explosive Contract' were inserted on one and the words 'Marandoo Explosive Contract - Defects Period' on the other. In each bank guarantee there was provision for the termination date of the guarantee to be inserted. In neither was any date inserted.

31 It appears to be common ground that work on the construction of the MEC, including work under the subcontract, did not commence until May 2012. Mr Dropulich says that practical completion of the subcontract work was achieved in or about February 2013, but neither of the bank guarantees has been returned to the appellant. Instead, the respondent has drawn down on them.

32 The respondent filed three affidavits in opposition to the application, being affidavits of Mr Zanotti, Mr Griffiths and Mr Parks.

33 In his affidavit, Mr Zanotti says that he is the proposals manager for the respondent and was responsible for the negotiation and finalisation of the head contract for the MEC and of contracts with the required subcontractors. According to Mr Zanotti, he has approximately 40 years' experience in the construction industry. He says that based on his experience it is common practice in the construction industry to set the release of a contractor's security for the work in two stages - the first upon the works reaching practical completion, and the second 12 months after practical completion is achieved to allow for a defects liability period. Where there is a subcontractor, 'practical completion' frequently refers to practical completion under the head contract to ensure that the period of the subcontractor's liability to the contractor is concurrent with the period of the contractor's liability to the principal.

34 Mr Zanotti says that in his email of 16 May 2011 he calculated the return date of the second bank guarantee as '30 June 2013' by adding one year and one month to the proposed completion date of 28 May 2012 in the then proposed construction programme. Mr Zanotti says that due to delays in finalising the head contract, the principal subsequently proposed a new start date of 7 May 2012 which was communicated to the appellant by the email of 9 March 2012, together with a new construction programme. The work in fact commenced in May 2012, not August 2011 as originally proposed.

35 Mr Parks says in his affidavit that he was the project manager of the respondent and that he has more than 36 years of experience in the construction industry. He reiterates Mr Zanotti's statements about the release of a contractor's security for the work in two stages and the use of 'practical completion' to refer to practical completion under the head contract, as also being his own experience.

36 Mr Parks says that shortly after receiving the appellant's email of 16 May 2011 attaching its initial tender, he spoke to Mr Singh of the appellant. Mr Singh noted that the respondent had proposed 'retention' but said the appellant wanted to provide guarantees instead. Mr Parks told him that was acceptable, subject to the format of the guarantees and provided they were for 10% of the contract price. (On the affidavit evidence, it would seem that Mr Singh's reference to 'retention' was a reference to the withholding by the respondent of 10% of the contract price, stipulated in the original scope of work which Mr Zanotti says was attached to the respondent's email of 15 April 2011.)

37 In his affidavit, Mr Griffiths says that at the time the bank guarantees were called on the respondent had extant claims against the appellant in respect of the subcontract work in the sum of $1,661,009.91. Attached to his affidavit is a copy of a set-off and counterclaim in that sum against the appellant in proceedings commenced by the appellant in the general division of this court. It does not clearly appear from the affidavit itself, or the set-off and counterclaim, when the claims against the appellant are alleged to have first arisen.

38 The master gave brief, ex tempore reasons. He noted that the parties had entered into a subcontract for works in connection with the construction of the MEC and that the subcontract 'included express provisions in relation to two bank guarantees'. The master continued:

It's the [appellant's] position that the guarantee clause is clear and unambiguous.

The contract itself emerges from a series of emails exchanged between the parties and it would appear that the bank guarantees were mentioned in only one email which, on the face of it at least, supports the [appellant's] position. It's the [respondent's] case that this is a situation where there is some uncertainty because of the nature of the way in which the contract was negotiated between the parties. The [respondent] points to the fact that the terms of the guarantees themselves suggest that they weren't to be returned in the terms of the alleged agreement between the parties.

In my view there is some uncertainty in relation to this matter but the [appellant] does have a strong case. It would seem to me that this is one of those rare cases where there should be leave to defend to the [respondent] conditional upon the amount of the claim being paid into court to await determination of the action as a whole.

39 The master ordered that the respondent have leave to defend, conditional upon the amount of the appellant's claim being paid into a bank account to be opened by the appellant's solicitors. That sum has since been deposited into an account opened for that purpose.

40 The appellant contends that the master erred in granting leave to defend at all and says that he should have ordered that judgment be entered for the appellant.

The Learned Master erred in finding that there was any uncertainty in the Subcontract provisions dealing with the bank guarantees in that:

1.1 The dates for the return are expressly stated in the contract terms;

1.2 When finalising the contract documents the parties incorporated the document containing those express terms without making any change to those terms.

1.3 There is no dispute that the contract is wholly in writing, and as a result the Learned Master should only have had recourse to those terms.

1.4 It is not appropriate to imply terms that are contrary to the express terms.

42 The appellant contends that it is clear the respondent has no arguable defence to the claim. According to the appellant, it was plainly a term of the subcontract that the respondent would return one of the bank guarantees on practical completion of the subcontract work and the other on 30 June 2013, as set out in the email of 16 May 2011. In failing to return the bank guarantees at those times the respondent was in breach of the subcontract and the master should have ordered that summary judgment be entered for the appellant.

43 The respondent denies there was such a term of the subcontract. Turning first to the date of '30 June 2013' in the email of 16 May 2011, the respondent says the email was sent well before the subcontract was entered into and it was accompanied by a construction programme under which the appellant would have access to the site on 1 August 2011 and the work would be completed by 28 May 2012. The respondent says, among other things, that in the email it would reasonably have been understood to have adopted the practice in the construction industry that security provided by a contractor is released in two stages, the first upon the works reaching practical completion, and the second 12 months after practical completion was achieved to allow for a defects liability period. The date '30 June 2013' in the email would have been understood to be, not an immutable date, but simply the calculation of the date upon which one of the bank guarantees would be released under the proposed construction programme, in accordance with that practice.

44 The respondent says it is evident from documents produced by the appellant that the appellant understood that to be the case. When, on 19 June 2012, the bank guarantees were obtained by the appellant the original commencement date had long passed and the work had only just commenced. The original construction schedule was therefore no longer relevant and neither was the date of 30 June 2013. That, the respondent says, explains why the appellant did not insert that date in one of the bank guarantees to limit the period of its operation, although specific provision was made in each of the bank guarantees for such a date to be inserted. It also explains the notation on one of the bank guarantees of the words 'Defects Period'. Further, it is consistent with the email of 26 June 2012 from the appellant to the respondent referring to the bank guarantees as 'two 5% [bank guarantees] at contract value, one for the 'Defects Period' and another'.

45 We should note that the documents relied upon to constitute the subcontract do not refer in their terms to a defects liability period and it is not evident whether it is in issue that the subcontract provided for a defects liability period. However, on the evidence before the master there is otherwise no explanation offered for the different return dates of the two bank guarantees. In the course of argument, senior counsel for the respondent said that if it was in issue the respondent would contend that a defects liability period arose as a matter of construction of the contract or by implication.

46 The respondent does not dispute that the other bank guarantee was to be returned to the appellant on practical completion but contends that there is a live question as to what was meant by practical completion. The respondent says the references in the email correspondence to 'PC' were to practical completion by the respondent under the head contract, not to practical completion by the appellant under the subcontract. That, it says, was for the obvious commercial reason that the respondent wanted to be certain that the work done by the appellant had been accepted by the principal before the respondent released its security for that work.

47 The respondent submitted that, as at 9 December 2013 when the appellant first made demand for the return of the two bank guarantees, the appellant was not, or at least arguably was not, entitled to either. At that time, the respondent had existing entitlements against the appellant arising from defects and omissions in the work done by the appellant and it was therefore entitled to call upon the bank guarantees as it did. The master was therefore correct to find that the respondent should have leave to defend.

48 The test to be applied on a summary judgment application has been stated numerous times, in a variety of different ways, and it is not helpful to add yet another formulation of the test. Suffice it to say that the power to order summary judgment is one that should be exercised with great care: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99; and it is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if they went to trial, that summary judgment ought properly be granted: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].

49 In our respectful opinion, the master was correct to conclude that the appellant had failed to establish its case with the requisite degree of certainty. As the respondent has not yet pleaded to the statement of claim and the action is to proceed to trial, it is not possible, nor would it be appropriate, to consider the respondent's possible defences to the claim in any detail.

50 What is immediately evident, however, is that the task of construing the contract is not a straight-forward one. The contract is said to be constituted, not by a single contractual document, but by 'a monumental and forbidding aggregation of documents' (FE Cleary & Sons Pty Ltd v Buckland Building Group Pty Ltd (Unreported, NSWCA, 12 February 1976), cited in Cremean D, Whitton M & Sharkey F, Brooking on Building Contracts (5th ed, 2013)), consisting of some 28 emails and attachments (a total of 447 pages) passing between the parties in the course of negotiations over a period of some 12 months. The emails deal with a large range of issues and subject-matters relating to the work. Some also refer to conversations of unspecified content and a number deal with matters inconsistently or which had by 5 April 2012 been superseded, reflecting the changing circumstances over that period. Apart from the original construction programme, the latter include, for instance, the proposal by the respondent that the bank guarantees be 2.5% each of the contract price rather than 5%, a proposal apparently subsequently abandoned in circumstances that are not explained.

51 The inevitable consequence of a contract said to be comprised of such material is that findings as to a specific contractual term are not necessarily to be derived from the contents of a single document. The contract must be construed by reading the documents as a whole, in the context of any other evidence that may properly be admissible. That is not a promising start for an applicant on a summary judgment application.

52 Against that background, we turn to the first of the specific issues raised on the appeal: whether the master should have found that the respondent was required to return one of the bank guarantees to the appellant on 30 June 2013. The appellant's case on this issue turns on its contention that it can be concluded with a high degree of certainty that the statement to that effect in the email of 16 May 2011 constituted a term of the subcontract. We are not persuaded that it is so clear.

53 In our view, on the basis of the affidavit evidence it is arguable, as the respondent contends, that the specification of the date in the email of 16 May 2011 would reasonably have been understood to be, not an immutable date, but a calculation based on the construction programme current at that time and simply indicative of an obligation to return one of the bank guarantees 12 months after the date of practical completion. That is, the true agreement between the parties was simply that the bank guarantee was to be returned 12 months after the date of practical completion, whenever that might turn out to be.

54 That, as the master implicitly found, is an issue which is not capable of being determined on a summary judgment application but could only be determined at trial.

55 In relation to the return of the other bank guarantee, it was common ground that the initialism 'PC' used in the documents referred to practical completion. The question was whether it referred to practical completion under the subcontract or under the head contract. The documents said to constitute the contract are silent as to that. It is a matter to be determined upon the proper construction of the contract as a whole and arguably may give rise to an ambiguity upon which extrinsic evidence would be admissible: Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, 348. Again, those were not issues which were capable of being determined on a summary judgment application but could only be determined at trial.

56 Finally, it was submitted by the appellant that, in any event, the respondent was not entitled to draw down on the bank guarantees. There was no provision in the subcontract enabling the respondent to do so. In the absence of such a provision, it was argued, the respondent's only right, subject to consent or a court order, was to retain the bank guarantees by way of security. In other words, as we understood the submission, in the event of a disputed claim by the respondent against the appellant in respect of the work, the respondent could retain the bank guarantees by way of security but could not call on them unless and until the dispute was resolved in the respondent's favour. Counsel for the appellant referred to Central Petroleum Ltd v Century Energy Services Pty Ltd [2011] WASC 211 and the authorities cited there.

57 We did not understand it to be disputed that the documents said to comprise the subcontract are silent on the circumstances in which the respondent may call on the bank guarantees. We do not, however, think it necessarily follows that the bank guarantees, which in this respect are unconditional in their terms, could not be called upon by the respondent upon the basis (as the respondent alleges) that it had an outstanding (albeit unresolved) claim against the appellant in respect of the subcontract work. We do not consider that Central Petroleum is authority for the proposition advanced by the appellant.

58 In Central Petroleum, Kenneth Martin J applied the principles enunciated by the Full Federal Court in Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458. It is unnecessary to consider Clough Engineering, a case quite different to the present case, in any detail. Suffice it to say that in that case the Full Court concluded that it is a question of construction of the underlying contract whether a performance guarantee is provided solely by way of security, or also as a device to allocate the risk between the parties as to who shall be out of pocket pending the resolution of a dispute between them. The court observed that that question of construction will be informed by the commercial background, but the court ought not too readily favour a construction which is inconsistent with an agreed allocation of risk as to who is to be out of pocket pending resolution of the dispute about breach [82]. It considered that clear words will be required to support a construction which inhibits the beneficiary of such a guarantee from calling on it where a breach is alleged in good faith, that is, non-fraudulently [83].

59 For present purposes, it is necessary only to observe that the purpose of the bank guarantees, and whether there was a term of the subcontract precluding the respondent from calling on them as it did, are clearly questions which turn on the proper construction of the subcontract: see Clough Engineering [85]; Lucas Drilling Pty Ltd v Armour Energy Ltd [2013] QCA 111 [43]. That may well itself involve an examination of a number of background matters and any question of breach is likely to involve a consideration of when the respondent's claims against the appellant are alleged to have arisen (on which the affidavit evidence is unclear) and the nature of them. In our view, in the circumstances those are not matters upon which it was appropriate to attempt to embark on a summary judgment application but had to be left for trial.

60 An issue also arose on the appeal as to whether the appellant had any right of appeal against the master's decision and, if so, whether an appeal lay only by leave. The appellant took the view that it was entitled to appeal either as of right or by leave.

61 Section 60 of the Supreme Court Act 1935 (WA) provides, relevantly, as follows:

(b) from an order of a judge or master giving unconditional leave to defend an action;

(f) without the leave of ... the Court of Appeal, from any interlocutory order or interlocutory judgment made or given by a judge or a master ...

(2) An order refusing unconditional leave to defend an action shall not be deemed to be an interlocutory order within the meaning of this section.

62 Counsel for the appellant argued that s 60(1)(b) of the Supreme Court Act had no application in this case. As the respondent was not given unconditional leave to appeal, the prohibition in s 60(1)(b) did not apply. It followed, it was submitted, that the appellant had an appeal as of right if s 60(2) applied in the present case or, alternatively, with leave if it did not.

63 The appellant's counsel conceded that it might be thought an unusual result that a plaintiff should be entitled to appeal against the refusal of a summary judgment application if leave to defend was made conditional upon the defendant paying the disputed amount into court, but to have no right of appeal, even with leave, if no condition was imposed on the defendant's leave to defend. That result, however, it was argued, inevitably followed from the plain words of the provision. Senior counsel for the respondent argued only faintly to the contrary. Neither side was able to refer to any authority directly on point and our own research has not uncovered any notwithstanding that the provision is of long-standing, being derived from the Supreme Court of Judicature (Consolidation) Act 1925 (UK). Reference was made in argument to Gordon v Cradock [1963] 2 All ER 121, but on the facts that case is not on point. Both counsel accepted that the more usual circumstance contemplated by the above provisions would be an appeal by a defendant against a condition imposed on leave to defend.

64 As we have concluded that the appeal must fail on the substantive merits we do not consider it is necessary to determine this issue. It can conveniently be left to another occasion, if it arises again.