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[2008] FCA 473
Federal Court of Australia
2008-04-09
Barwick CJ, Graham J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 By a Notice of Motion filed 1 February 2008 the applicant has sought judgment against the respondent in relation to part of the proceeding. 2 The orders sought in the Notice of Motion were as follows: 1. Summary judgment be entered against the Respondent, on part of the Applicant's claim against the Respondent, in the sum of $309,455.00 pursuant to Section 31A of the Federal Court of Australia Act 1976. 2. The Respondent pay the Applicant interest pursuant to Order 35 Rule 8 of the Federal Court Rules from 13 May 2002 until the judgment amount is paid. 3. The Respondent pay the Applicant's costs of this motion 3 Section 31A of the Federal Court of Australia Act 1976 (Cth) ('the Federal Court of Australia Act') was inserted into the Federal Court of Australia Act by the Migration Litigation Reform Act 2005 (Cth). Section 31A makes provision for the Court to give summary judgment for an applicant in relation to the whole or any part of the proceeding upon it being satisfied that the respondent has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. It also provided for a judgment in the nature of summary dismissal of the whole or any part of a proceeding on the application of a respondent in the event that it was satisfied that the applicant had no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. 4 The effect of s 31A was to soften the test for a successful application for summary judgment as stated by the High Court in Theseus Exploration N.L. v Foyster (1972) 126 CLR 507 ('Theseus Exploration') and also the test for a successful application for summary dismissal as stated by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 ('General Steel Industries'). 5 Section 31A of the Federal Court of Australia Act provides as follows: 31A(1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is prosecuting the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. (4) This section does not limit any powers that the Court has apart from this section. 6 In General Steel Industries which, of course, was decided before the passage of s 31A(3) of the Federal Court of Australia Act, Barwick CJ stated the then test for summary dismissal at 128-130 as follows: The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion. … [the] cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense". … … Dixon J. (as he then was) sums up a number of authorities in Dey v Victorian Railways Commissioners where he says: "A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process." Although I can agree with Latham C.J. in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand, I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed. … [footnotes omitted] 7 In Theseus Exploration an application for summary judgment, as opposed to summary dismissal, was refused by the primary judge. By special leave the plaintiff appealed from that refusal to the High Court. Having entertained full argument upon the legal matters in dispute between the parties and in circumstances where there were no disputed issues of fact, the High Court allowed the appeal and ordered that summary judgment be entered for the plaintiff. However, the High Court did not formally rule upon the primary judge's refusal of the application for summary judgment. Theseus Exploration was also decided before the passage of s 31A(3) of the Federal Court of Australia Act. At 514 Barwick CJ said: … The jurisdiction to give summary judgement should not be exercised "where a difficult question of law is raised" - see generally the Supreme Court Practice (1970) vol. 1 pp. 126-130. Perhaps the summary intervention to prevent the continuance of a plaintiff's action ought to be much rarer than the giving of summary judgment but there is sufficient correspondence in the two situations to make apposite to this case much of what I said in General Steel Industries Inc. v. Commissioner for Railways (N.S.W.). [footnotes omitted] 8 Gibbs J, as his Honour then was, considered that the primary judge had been completely justified in dismissing the application for summary judgment. At 514-5 his Honour said: … Indeed, on one view of the law as stated in Bundock Bros. v. Bergl and Co., he was bound to dismiss it. In that case Griffith C.J., speaking for the Full Court of the Supreme Court of Queensland in a case arising under an earlier rule ... said,: "It is settled that when there is a serious point of law raised by a defendant, the Judge in Chambers ought not to decide it, but ought to give unconditional leave to defend." Similarly in Commonwealth Dairy Produce Equalisation Committee Ltd. v. Hansen Mansfield J., as he then was, said that leave to defend should be given where there is a difficult question of law, and cited Electric and General Contract Corporation v. Thomson-Houston Electric Co. in support of this proposition. No doubt the remarks in these cases were not intended to preclude the exercise of some discretion by a judge to whom application for summary judgment is made in deciding whether the question of law raised is so difficult that it ought not to be decided summarily, and no doubt also sometimes some explanation or reference to authorities will be necessary to enable a judge to decide whether a question is really unarguable. However, in the present case the questions were serious and disputable and, assuming that the learned primary judge had a discretion, it was entirely proper for him to decline to dispose of them in chambers. [footnotes omitted] 9 In Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 Mason, Murphy, Wilson, Deane and Dawson JJ said in respect of an application for summary judgment at 99: The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v. Union Bank of Australia Ltd.; Jones v. Stone; Jacobs v Booth's Distillery Co. [footnotes omitted] 10 The Explanatory Memorandum circulated by authority of the Attorney-General in relation to the Migration Litigation Reform Bill 2005 revealed the purpose of the new s 31A of the Federal Court of Australia Act. It relevantly provided: 21 … Section 31A provides that the Court may give summary judgment in a matter where it is satisfied that a proceeding or part of a proceeding, or a defence to a proceeding or part of a proceeding, has no reasonable prospect of success. 22. Subsection 31A(3) provides that for the purposes of giving summary judgment, a proceeding or part of a proceeding, or a defence to a proceeding or part of a proceeding, need not be hopeless or bound to fail for it to have no reasonable prospect of success. This moves away from the approach taken by the courts in construing the conditions for summary judgment by reference to the 'no reasonable cause of action' test, in Dey v Victorian Railways Commissioners … and General Steel Industries Inc v Commissioner for Railways (NSW) … [both of which were summary dismissal cases]. These cases demonstrate the great caution which the courts have exercised in regard to summary disposal, limiting this to cases which are manifestly groundless or clearly untenable. 23. Section 31A will allow the Court greater flexibility in giving summary judgment and will therefore be a useful addition to the Court's powers in dealing with unmeritorious proceedings. … 11 In his Second Reading Speech in the House of Representatives (Hansard 10 March 2005 at p.3) the Attorney-General said, amongst other things: The bill also strengthens the power of the courts to deal with unmeritorious matters, by broadening the grounds on which federal courts can summarily dispose of unsustainable cases. … A like observation was made by the Minister delivering the Second Reading Speech in the Senate (Hansard 11 May 2005 at p139). 12 It may be observed that the word 'may' in the expression 'may give judgment' in s 31A(1) and s 31A(2) is permissive not mandatory. 13 The concept of 'no reasonable prospect of successfully prosecuting' a proceeding, which is a relevant issue where summary dismissal is sought under s 31A(2) of the Federal Court of Australia Act, was addressed by Rares J in Boston Commercial Services Pty Ltd (ACN 114 658 070) v G E Capital Finance Australasia Pty Ltd (ACN 070 396 020) (2006) 236 ALR 720. At [43] his Honour said: … The concept of a party having "no reasonable prospect of successfully prosecuting a proceeding" has some similarity to the test at common law for determining whether a jury properly instructed could reach a verdict for the plaintiff. … [emphasis added] At [44] Rares J said: [44] In a case to which s 31A applies, where there is a real issue of fact to be decided in the sense identified in the above principle [a reference to [43] and to Hocking v Bell (1945) 71 CLR 430 at 441-2], and, possibly, where there is a real issue of law of a similar kind, it is obviously appropriate that the matter goes to trial. … 14 In Paramasivam v University of New South Wales [2007] FCA 875, another summary dismissal case under s 31A(2), Tamberlin J said at [14]: … it is essential that the Court must be careful not to do an injustice by summarily dismissing proceedings, or denying an applicant an opportunity to ventilate their case. … 15 In White Industries Australia Ltd v FC of T (2007) ATC 4441 Lindgren J said at [50] that s 31A 'is concerned with the bringing and defending of proceedings, not just with pleadings; with substance, not just with form'. 16 Section 31A(1) of the Federal Court of Australia Act permits the Court to give judgment for an applicant against a respondent 'in relation to … any part of a proceeding' if the applicant is prosecuting 'that part of the proceeding' and the Court is satisfied that the respondent has no reasonable prospect of successfully defending that part of the proceeding. 17 In the present case the applicant is not presently 'prosecuting the proceeding', rather, it is prosecuting 'a part of the proceeding'. The relevant 'part' was identified by the applicant by reference to prayer for relief No. 5 as contained in the Application filed 5 July 2007. The Application contained the following prayers for relief: On the grounds stated in the accompanying statement of claim, the applicant claims: 1. Compensation under s.298U of the Workplace Relations Act in the sum of $11,367,732 plus any further amounts payable by the applicant to Rapid Metal Developments (Australia) Pty Ltd. 2. Damages for the tort of conspiracy in the sum of $11,367,732 plus any further amounts payable by the applicant to Rapid Metal Developments (Australia) Pty Ltd. 3. Further or alternatively, damages pursuant to s.82 of the TPA or compensation pursuant to s.87 of the TPA in the sum of $11,367,732 plus any further amounts payable by the applicant to Rapid Metal Developments (Australia) Pty Ltd. 4. Further or alternatively, damages for the tort of conversion in the sum of $2,160,584 plus any further amounts payable by the applicant to Rapid Metal Developments (Australia) Pty Ltd. 5. Alternatively, damages of $3,363,858 plus any further amounts payable by the applicant to Rapid Metal Developments (Australia) Pty Ltd or such other sum as this Court shall determine. 6. Interest pursuant to s.51A of the Federal Court Act (sic) 1976. 7. Costs. 18 The part of the proceeding in relation to which the applicant presently seeks judgment is itself said to be part of the applicant's claim covered by prayer for relief No. 5 above. The sum of $309,455.00 is said to form part of the 'damages of $3,363,858' sought in prayer for relief No. 5. 19 The context in which the applicant brought its proceedings against the respondent was that during 2000 the respondent had been engaged to build a high rise office tower at 240 St George's Terrace, Perth, Western Australia. The building, subsequently known as the Woodside Building, was duly erected. 20 The applicant's interest in the project was as a formwork subcontractor. 21 In its defence filed 15 November 2007 the respondent admitted that it entered into a written contract with the applicant on or about 25 September 2001. The recitals to that agreement provided: A. The Principal has engaged the Main Contractor [referring to the respondent] to carry out and complete the Main Contract Works on the terms and conditions of the Main Contract. B. The Main Contractor wishes to engage the Subcontractor [referring to the applicant] to carry out and complete the Subcontract Works. C. The Subcontractor has agreed to accept the engagement and carry out the Subcontract Works in accordance with the Subcontract. 22 The Subcontract Works were defined in clause 1 of the General Conditions of Subcontract to mean: …the whole of the Work to be carried out and completed in accordance with the Subcontract, including Variations provided for by the Subcontract, which by the Subcontract is to be handed over to the Main Contractor; 23 Clause 5 of the General Conditions of Subcontract called for the applicant to 'provide security in accordance with Item 19' [referring to item 19 in Annexure Part A]. Item 19 of the Annexure to the General Conditions of Subcontract was expressed as follows: 19. Subcontractor's security (a) Form Unconditional Bank Guarantee in the form of Annexure Part B given by an approved Australian Trading Bank (clause 5) (b) Amount of maximum percentage of the original Subcontract Sum (clause 5) 5% If nothing stated, 10% of the original Subcontract Sum (c) If retention moneys, percentage of each Payment Advice Not applicable (clause 5 and subclause 37.2) If nothing stated, 10%, until the limit in Item 19(b) (d) Time for provision (except for retention moneys) If nothing stated, 28 days (clause 5) (e) Additional Security for unfixed plant and materials (subclauses 5.4 and 37.3) Unconditional Bank Guarantee in the form of Annexure Part B given by an approved Australian Trading Bank (f) Subcontractor's security upon Certificate of Practical Completion is reduced by (subclause 5.4) 50% of amount held If nothing stated, 50% of amount held
24 'Security' was defined in clause 1 of the General Conditions of Subcontract to mean: (a) cash; (b) retention moneys; (c) an approved unconditional bank guarantee in the form of Annexure Part B given by an approved Australian trading bank; or (d) any other form approved by the Main Contractor; 25 Clause 5.8 of the General Conditions of Subcontract provided: 5.8 Release of security The Subcontractor shall have no entitlement to the release of any Security: (a) while a dispute between the parties in connection with the Subcontract or the WUS remains unresolved; and (b) in the reasonable opinion of the Main Contractor's Representative, the outcome of the dispute will result in an amount payable or allowable by the Subcontractor to the Main Contractor. For the purposes of this clause "dispute" includes any claim made by one party which has not been the subject of agreement. 26 Annexure Part B was entitled 'Approved form of unconditional undertaking'. The form of unconditional undertaking bore the subtitle 'Approved form of unconditional bank guarantee'. It provided for a financial institution to unconditionally undertake to pay on demand any sum or sums which may from time to time be demanded by the Main Contractor to a maximum aggregate sum, which was to be inserted into the form of bank guarantee. The approved form provided for the undertaking to continue until notification had been received from the Main Contractor that the sum was no longer required by the Main Contractor or until the undertaking was returned to the financial institution or until payment to the main contractor by the financial institution of the whole of the sum or such part as the Main Contractor may require. 27 On 17 October 2001 two Unconditional Bank Guarantees were provided by HSBC Bank Australia Limited each unconditionally undertaking to pay on demand any sum or sums which may from time to time be demanded by the respondent to a maximum aggregate of $A308,625.00. Notwithstanding the form of bank guarantee provided for in the subcontract, each undertaking was expressed to expire 'at 5 pm on 27 October 2002 in Western Australia'. 28 Subsequent to the entry by the parties into the formwork subcontract and the provision of the two bank guarantees, a Loan Agreement was entered into between the applicant and the respondent. Clause 2 of that agreement provided as follows: 2.1 Commitment BHPL [the respondent] agrees to make a single Advance to the Borrower [the applicant] under the Facility up to an aggregate principal amount not exceeding the Facility Limit [$1,050,000 or any other amount as may be agreed to writing (sic) between the respondent and the applicant to the extent that the Facility is not cancelled or permanently reduced under the Loan Agreement], subject to the terms of this document and in reliance on the representations and warranties contained in it. 2.2 Purpose The Borrower may only use the Facility for the purposes of working capital. … 29 Clause 5 of the Loan Agreement provided for repayment and set-off as follows: 5.1 Repayment The Borrower will: (a) repay Tranche A, together with all accrued interest relating to Tranche A, to BHPL on 1 March 2002; (b) repay Tranche B, together with all accrued interest relating to Tranche B, to BHPL on 1 April 2001 (sic) [it is common ground that this should read 2002]; (c) repay Tranche C, together with all accrued interest relating to Tranche C and all other money the payment or repayment of which forms part of the Obligations, to BHPL on the Termination Date [in the events which have transpired, 1 May 2002]. 5.2 Set-Off The Borrower and BHPL acknowledge and agree that the obligation of the Borrower to make the payments referred to in clause 5.1 may, at BHPL's election, be set-off against any amounts which BHPL owes the Borrower under the Sub-Contract. 30 Clause 10.1 of the Loan Agreement dealt with events of default and clause 10.2 with the respondent's rights on events of default. Clause 10 relevantly provided: 10.1 Events of Default Each of the events set out in this clause is an Event of Default, whether or not the cause is beyond the control of the Borrower or of any other person: (a) (Failure to pay): the Borrower does not pay at or before the due time on the due date and in the specified manner, any amount payable by it under any Transaction Document [referring to the Loan Agreement, the Bank Guarantees, the Sub-contract and "each other document to which the Borrower and BHPL are parties at any time there (sic): (i) relates to any money that are declared by the document to be part of the Obligations; or (ii) is expressed to be, or is agreed by the said parties to be, a Transaction Document for the purposes of this document, and any document to which other persons are also parties or which is, or which is expressed to be, collateral or supplemental to any other document that is then a Transaction Document"] and such default is not cured within 5 Banking Days; … 10.2 BHPL's rights on Event of Default If any Event of Default occurs, at any time thereafter if it continues, BHPL may: (a) … and/or (b) without any notice to the Borrower, make a claim or claims on the Bank Guarantee any (sic) apply to (sic) proceeds received therefrom towards repaying the Obligations. 31 Apart from identifying 'failure to pay' as an event of default, clause 10.1 listed in paragraphs (b) - (m) a series of other events of default proceeded by the captions 'Failure to comply', 'Untrue warranty', 'Breach of undertaking', 'Event of Default under Transaction Document', 'Default under other transactions', 'Event of Insolvency', 'Investigation', 'Cessation of business', 'Void or voidable', 'Illegality', 'Failure to comply with laws' and 'Material change'. 32 The reference to 'repaying the Obligations' in clause 10.2(b) of the Loan Agreement is not easily understood in the context of the definition of 'Obligations' in clause 1.1 of the Loan Agreement. 'Obligations' was defined as follows: In this document: … "Obligations" means all the liabilities of the Borrower to BHPL under or by reason of: (a) any Transaction Document; or (b) any other transaction, matter or event, and, includes any liabilities which : (c) are unliquidated; (d) are present, prospective or contingent; (e) are in existence before or come into existence after the date of this document; (f) relate to the payment of money or the performance or omission of any act; (g) sound in damages only; or (h) accrue as a result of any Event of Default. and irrespective of: (i) whether the Borrower is liable or obligated solely, or jointly, or jointly and severally with another person; (j) the circumstances in which BHPL comes to be owed each liability or obligation, including any assignment of any liability or obligation; or (k) the capacity in which the Borrower and BHPL comes to owe or to be owed that liability or obligation. 33 Apart from the confusion created by the manner of expression of clause 10.2(b) of the Loan Agreement, it may be found, after full argument on the matter, that the expression 'repaying the Obligations' should be construed as 'meeting the Obligations'. 34 It may be seen, expressing the matter in somewhat general terms, that the bank guarantees were provided under the formwork subcontract, albeit in slightly different terms from that required by the subcontract, to provide security for the due performance of the subcontract by the applicant and to take the place of retention monies which might otherwise be withheld under progress payments. The bank guarantees also had significance in relation to the due performance by the applicant of its obligations under the loan agreement, entered into with a view to providing the applicant with working capital with which it could, presumably, commence to discharge its obligations under the subcontract. 35 The applicant's Amended Statement of Claim filed 23 August 2007 is broken up into various sections under marginal headings recorded as 'PARTIES AND OTHER PERSONS' (paragraphs 1 - 6), 'ENTRY INTO FORMWORK CONTRACT' (paragraphs 7 - 22), 'CAUSE OF ACTION - CONTRAVENTION OF WORKPLACE RELATIONS ACT' (paragraphs 23 - 25), 'CAUSE OF ACTION - CONSPIRACY' (paragraphs 26 - 30), 'CAUSE OF ACTION - MISLEADING OR DECEPTIVE CONDUCT' (paragraphs 31 - 34), 'CAUSE OF ACTION - CONTRACT' (paragraphs 35 - 39) and ' CAUSE OF ACTION - CONVERSION' (paragraphs 40 - 43). 36 For the purposes of the summary judgment application the Court's attention has been directed to that part of the Amended Statement of Claim recorded under the heading 'CAUSE OF ACTION - CONTRACT'. In particular the Court has been referred to paragraph 36, which has been somewhat unusually expressed in terms appropriate to a claim in tort and appears to have little relationship to the contract claims in respect of the subcontract works which surround it. The whole of the section headed 'CAUSE OF ACTION - CONTRACT' provided as follows: 35. Further or alternatively, the contract between the Applicant and the Respondent for performance of the Works provided that:- 35.1 the Respondent could terminate the contract at any time and for any reason by giving written notice to the Applicant (clause 39.12); 35.2 on termination pursuant to the term pleaded in paragraph 35.1, the Applicant was entitled to payment for:- 35.1.1 all services provided and material supplied by the Applicant to the Respondent; 35.1.2 the cost of goods or materials reasonably ordered by the Applicant; 35.1.3 the cost of removing all labour and other things used in performing the contract; and 3.5.1.4 $1.00 (clause 39.13). 36. The Respondent has wrongfully drawn down two performance bonds provided by the Applicant in the total sum of $617,250 and has not repaid that sum to the Applicant, despite demand and despite the Applicant not being indebted to the Respondent or otherwise liable to suffer the payment of the said sum to the Respondent. 37. On 17 May 2002 the Respondent terminated the said contract pursuant to the term pleaded in paragraph 35.1 but has made no payment to the Applicant pursuant to the term pleaded in paragraph 35.2 or at all. 38. As at 17 May 2002:- 38.1 the value of the work performed by the Applicant, other than provision of materials, was $6,880,550.60; 38.2 the Respondent had paid the Applicant $6,294,536.04 in respect of that said work, leaving an unpaid entitlement to the Applicant of $586,014.56 38.3 the Applicant had supplied to the Respondent materials to the value of $2,160,582.84 plus the value of the materials supplied by Rapid Metal Developments (Australia) Pty Ltd, which the Respondent was bound to pay for but which had not been paid for by the Respondent. 39. By reason of the matters pleaded in paragraphs 36-39 the Respondent is indebted to the Applicant in the sum of $3,363,858.40 plus the amount of Rapid Metal Developments (Australia) Pty Ltd's claim against the Applicant. 37 Senior counsel for the applicant informed the Court that paragraph 36 of the Amended Statement of Claim was intended to record a claim for breach of contract, the relevant contract being the loan agreement, not the formwork subcontract. It may be observed that the relevant paragraph does not plead the loan agreement or any terms thereof and does not plead any breaches of any promises said to be contained in the loan agreement. It may also be observed that the paragraph is not expressed as a common money count for money had and received by the respondent for the use of the applicant. 38 The applicant has sought to satisfy the Court that the respondent has no reasonable prospect of successfully defending that part of the proceeding which is the subject of paragraphs 36 and 39 of the Amended Statement of Claim in relation to $309,455 being part of the sum of $617,250 referred to in paragraph 36 of the Amended Statement of Claim and part of the sum of $3,363,858.40 referred to in paragraph 39, by relying upon admissions and matters pleaded by the respondent in its Defence filed 15 November 2007 and, relevantly, two statements contained in the affidavit of Fiona Touhill, a solicitor in the employ of John de Mestre & Co, the solicitors for the applicant, sworn 1 April 2008, which was read on the hearing of the motion. The relevant passages were as follows: 6. … I am informed by Warren Anderson, the sole director of the Applicant and verily believe that the issuing bank appropriated $617,250 cash from the applicant which had been provided as security for the Bank Guarantees. 7. … The respondent has not repaid any part of the $617,250 to the applicant. 39 No evidence was provided by the applicant in support of its motion to the effect that at no material time was any money owed by the applicant to the respondent under the formwork subcontract, that there had been no breaches of the formwork subcontract by the applicant or that the applicant had no liabilities to the respondent which fell within the definition of 'Obligations' in the loan agreement. 40 The matters referred to in the Defence, upon which the applicant relies in support of its motion, are to be found, primarily, in paragraph 24 of the Defence which is expressed to be 'In answer to paragraph 36 of the Claim'. The applicant also refers to paragraph 32 of the Defence which was expressed to be 'In further or alternative answer to paragraphs 23 to 39 of the Claim'. Paragraph 24 of the Defence commenced as follows: 24. In answer to paragraph 36 of the Claim, the Respondent: (a) admits that, at the request of the Applicant, HSBC Bank Australia Limited (HSBC) issued 2 bank guarantees, whereby HSBC undertook to pay the Respondent the total sum of $617,250 on demand (Bank Guarantees); (b) admits that the Respondent made demands under the Bank Guarantees and that the total sum of $617,250 was paid to it on or about 13 May 2002; (c) admits that the Respondent has not repaid the sum of $617,250 to the Applicant, but does not admit having any obligation to do so; (d) otherwise denies the paragraph; … 41 Senior Counsel for the applicant says that had paragraph 24 ended at subparagraph (d), no application for summary judgment would have been brought. It is submitted that the vice in paragraph 24 lies in subparagraph (e) which follows subparagraphs (a)-(d). Particular reliance is placed by the applicant upon paragraph (24)(e)(iii) and (vii). Subparagraph (e) provided as follows: (e) says that: (i) On or about 17 December 2001, the Applicant and the Respondent entered into a loan agreement (Loan Agreement); (ii) On or about 17 December 2001, the Respondent advanced the sum of $1,050,000 to the Applicant pursuant to the Loan Agreement; (iii) Clause 10.2 of the Loan Agreement provided that, if any Event of Default occurs, at any time thereafter if it continues, the Respondent may, without any notice to the Applicant, make a claim or claims on the Bank Guarantees and apply the proceeds towards repaying the Obligations; (iv) Clause 10.1 of the Loan Agreement provided that the following were each an "Event of Default": A. The Applicant does not pay at or before the due time on the due date and in the specified manner, any amount payable by it under any Transaction Document (including the Loan Agreement and the AF Subcontract) and such default is not cured within 5 Banking Days (clause 10.1(a)); B. The Applicant defaults in fully performing and observing any provision of any Transaction Document (including the Loan Agreement and the AF Subcontract), other than a provision requiring the payment of money as described in clause 10.1(a), and if that default is capable of remedy, it has not been remedied within 14 days of the occurrence of the default (clause 10.1(b)); (v) Clause 1.1 of the Loan Agreement defined "Obligations" to mean all the liabilities of the Applicant to the Respondent under or by reason of any Transaction Document (including the Loan Agreement and the AF Subcontract) or any other transaction or event, including any liabilities which: A. are unliquidated; B. are present, prospective or contingent; C. are in existence before or come into existence after the date of the Loan Agreement; D. relate to the payment of money or the performance or omission of any act; E. sound in damages only; or accrue as a result of any Event of Default. (vi) Clause 5.1(c) of the Loan Agreement provided that the Applicant will repay, inter alia, the outstanding balance of the amount advanced to the Applicant pursuant to the Loan Agreement plus interest on 1 May 2002; (vii) As at 1 May 2002, the outstanding balance of the amount advanced to the Applicant pursuant to the Loan Agreement plus interest was $307,795 (Outstanding Loan Balance); (viii) In breach of clause 5.1(c) of the Loan Agreement, the Applicant did not repay the Outstanding Balance (sic) on 1 May 2002, within 5 Banking Days of 1 May 2002, or at all; (ix) Further, by clause 9(i) of the Loan Agreement the Applicant undertook to the Respondent that it would not create, permit or suffer to exist any Encumbrance (including any charge) over all or any of its assets without the Respondent's prior written consent; (x) On or about 3 January 2002, without the Respondent's consent and in breach of clause 9(i) of the Loan Agreement, the Applicant created, permitted or suffered to exist a fixed and floating charge over the whole of its undertaking, property and assets both present and future, in favour of Bridgecorp Finance Ltd; (xi) The breach of clause 9(i) of the Loan Agreement was not remedied within 14 days of the occurrence of the default or at all; (xii) Further, clause 5.1 of the AF Subcontract provided that the Applicant must provide to the Respondent an unconditional bank guarantee in the form of Annexure B to the AF Subcontract; (xiii) In breach of clause 5.1 of the AF Subcontract, the Applicant did not provide to the Respondent an unconditional bank guarantee in the form of Annexure B to the AF Subcontract; Particulars The Bank Guarantees expired at 5pm on 27 October 2002, whereas the form of bank guarantee set out in Annexure B of the AF Subcontract continued (relevantly) until notification had been received from the Respondent that the sum was no longer required. (xiv) The breach of clause 5.1 of the AF Subcontract was not remedied within 14 days of the occurrence of the default or at all; (xv) In the premises, the Applicant committed Events of Default for the purposes of the Loan Agreement, such that the Respondent was entitled to make a claim or claims on the Bank Guarantees without any notice to the Applicant, and to apply the proceeds towards repaying the Obligations (including the Outstanding Loan Balance); 42 In short compass, the applicant's case for summary judgment is that: · on or about 13 May 2002, the respondent made demands on the Bank under the bank guarantees and received payment thereunder of $617,250 (see Defence paragraph 24(b)) · the outstanding balance of the amount advanced to the applicant pursuant to the loan agreement plus interest was $307,795 as at 1 May 2002, · it follows that the respondent had no reasonable prospect of successfully defending a claim for breach of contract, albeit not properly pleaded, in respect of the net balance of $309,455 produced by subtracting $307,795 from the amounts drawn down which totalled $617,250. · in the circumstances, the applicant seeks summary judgment in respect of the amount of $309,455 together with interest at the relevant Federal Court rate from 13 May 2002 to 7 April 2008 of $191,849.39, a total of $501,304.39. 43 Whilst the argument advanced may have some superficial attraction, when one digs beneath the surface, it is not readily apparent that the respondent has no reasonable prospect of successfully defending the claim for $309,455 plus interest. Firstly, clause 10.2(b) of the Loan Agreement entitled the respondent "without any notice to the [applicant], [to] make a claim or claims on the Bank Guarantee[s] any (sic) apply to (sic) proceeds received therefrom towards repaying the Obligations". As has previously been observed "Obligations" under the Loan Agreement extend to "all the liabilities of [the applicant] to [the respondent] under or by reason of" not only the Loan Agreement but also any other "Transaction Document" and "any other transaction matter or event" and includes liabilities which are "present, prospective or contingent" and liabilities which "come into existence after the date of this [loan agreement]". 44 Secondly, one cannot disregard subparagraphs (c) and (d) of paragraph 24 of the Defence which put in issue any obligation on the part of the respondent to repay $617,250 to the applicant and joined issue with the assertion in paragraph 36 of the Amended Statement of Claim that the applicant was not indebted to the respondent or otherwise liable to suffer the payment of the monies drawn down under the guarantees, to the respondent. 45 In my opinion, the evidence does not support a finding that the respondent has no reasonable prospect of defending that part of the proceeding, which has been identified by the applicant as relating to the sum of $309,455. 46 It seems to me that an important question of law will arise as to the true meaning of clause 10.2(b) of the Loan Agreement and to the reach thereof. Furthermore, the evidence, to which reference has been made, which has been led by the applicant, does not rule out any entitlement in the respondent to apply or retain the monies drawn down under the bank guarantees in consequence of the provisions of the subcontract requiring the applicant to provide security. 47 In my opinion this is not a proper case for summary judgment for the applicant against the respondent in relation to part of the proceeding. The Notice of Motion should be dismissed with costs. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.
Associate: Dated: 9 April 2008 Counsel for the Applicant: J N West QC and J C Giles
Counsel for the Respondent: B D Hodgkinson SC and G K J Rich
Anderson Formrite Pty Ltd
Baulderstone Hornibrook Pty Ltd
(1972) 126 CLR 507
(1964) 112 CLR 125
(1983) 154 CLR 87
(2006) 236 ALR 720
(1945) 71 CLR 430