Concrete Constructions v Dalma Formwork [1999] NSWCA 16 | Case summary

JUDGMENT 1 MASON P: I agree with Sheppard AJA. 2 HANDLEY JA: I agree with Sheppard AJA 3 SHEPPARD AJA: This is an application for leave to appeal against the judgment of Rolfe J sitting in the Construction List of the Commercial Division by which his Honour dismissed a notice of motion filed on 20 March 1998 on behalf of the claimant ("Concrete"), the defendant in the proceedings before Rolfe J, for security for costs. The application for leave has been heard upon the basis that, if the Court thinks the case a proper case for leave, it can deal with the appeal on a final basis. 4 The action with which his Honour was concerned is an action brought by the opponent ("Dalma") against Concrete for damages for breaches of a building subcontract. The nature of the dispute is described in the summons as a claim for reasonable remuneration for subcontract works or, in the alternative, for damages for wrongful termination of the subcontract by Concrete. Damages are also claimed pursuant to s.52 of the Trade Practices Act 1974 (Cwlth) as a consequence of misleading and deceptive conduct said to have been engaged in by Concrete and representations made by it as to future matters within the meaning of s.51A of that Act. Amongst the issues which were said to be likely to arise were the terms of the subcontract, whether Concrete was in breach of the terms of the subcontract in respect of the provision of equipment and services to Dalma, whether delays in progressing the subcontract works by Dalma were caused by Concrete and whether Dalma suffered losses, damages and expenses as a consequence of breaches of the subcontract by Concrete. Other issues are stated but it is unnecessary to refer to these. 5 The subcontract was alleged to be one pursuant to which Dalma was to supply, fix and dismantle formwork for use on the Broadway Shopping Centre project, Parramatta Road, Sydney. Concrete was the principal contractor. Its was to pay to Dalma the sum of $7,050,000 as adjusted by the terms of the subcontract. 6 In subsequent paragraphs allegations were made concerning the documents which were said to comprise the subcontract. It was alleged that there were oral terms as well. Breaches of the subcontract were alleged and particularised. The circumstances under which the contract was terminated were referred to and the summons concluded by saying that Dalma believed that all issues in the summons were appropriate for referral to a referee. 7 In its defence, Concrete said that it did not agree that Dalma's statement of the issues was complete or accurate. It was said that they also included the value of the amount by which the subcontract sum should be reduced in certain respects, Concrete's entitlement to recover from Dalma contributions paid by Concrete in respect of Dalma's work force, the additional cost to Concrete of completing those parts of the works not completed by Dalma, the additional cost of rectifying defective subcontract work, Concrete's entitlement to damages in respect of Dalma's delays in completing the works and in respect of its failure to complete them, and, importantly for present purposes, Concrete's entitlement to set-off, against moneys or damages otherwise recoverable by Dalma, moneys or damages properly recoverable by Concrete from Dalma in respect of matters referred to in each of the earlier paragraphs. 8 Additionally, Concrete raised contentions in relation to the terms of the contract, the documents in which it was contained and in respect of a number of other matters. Concrete also denied that it was in breach of the contract and denied a number of other matters to the detail of which it is unnecessary to refer. 9 In paragraph C28 of its defence, Concrete alleged that, pursuant to a deed dated 23 December 1997, it had made certain payments on behalf of Dalma totalling $175,251.90 and that Dalma was liable to repay that amount to Concrete. The amount was particularised. 10 In a cross-claim Concrete claimed against Dalma the sum of $1,676,000, the make-up of which was particularised. Also claimed was an entitlement to set-off against moneys or damages otherwise recoverable by Dalma, moneys or damages properly recoverable by Concrete from Dalma pursuant to, inter alia, paragraph C28 of the defence earlier referred to. 11 The deed of 23 December 1997 contained a clause to the effect that, without admission of any obligation to do so or any liability arising from, incidental to or associated with the contract, Concrete agreed to make certain payments of certain sums in respect of "current outstanding ACIRT payments, current outstanding CBUS payments, and all current outstanding CTAS payments". These various acronyms stand respectively for Australian Construction Industry Redundancy Trust, Construction and Builders' Union Superannuation, and Coverforce Top Up Accident Scheme. The total of the amounts referred to in clause 2.1 is the amount claimed by way of set-off by Concrete in paragraph C28 of its defence. So far as it is relevant, clause 2.2 of the deed provided: "In consideration of the direct payment by [Concrete] to ACIRT, CBUS and CTAS respectively of the amounts referred to in clause 2.1 of this Deed, [Dalma] agrees on the earlier of resolution of the matters currently the subject of mediation between [Concrete] and [Dalma] or 1 July 1999 that: (a) [Concrete] will be entitled to offset any monies which may be owed by [Concrete] to [Dalma] in respect of any claim made by [Dalma] arising from, incidental to or associated with the Contract, against any payments made by [Concrete] pursuant to clause 2.1 of this Deed. …" 12 Important in the consideration of the questions to be decided in this matter is the fact that clause 2.2 provided that Dalma agreed that, on the earlier of the resolution of the matters then currently the subject of mediation between the parties or 1 July 1999, Concrete would be entitled to offset the moneys referred to in the clause. One of the issues that has to be considered is whether the moneys, insofar as they cover the matters the subject of Dalma's claim, were presently payable at the time the matter was dealt with by Rolfe J or indeed, are presently payable. In this connection, I should mention that we were informed during the argument that it was likely that the final hearing of the matter would take place about July 1999, that is about the time provided for in the clause for the indemnity to take effect unless there had been an "earlier resolution of the matters currently the subject of mediation …". 13 In the course of his judgment, Rolfe J referred to the judgment of Smart J in Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616. In that case Smart J propounded (at 626-7) a number of matters which were relevant to the exercise of the discretion to grant or refuse security for costs. The application before Smart J was made pursuant to s.533 of the Companies (NSW) Code. This application was made pursuant to s.1335 of the Corporations Law. The principles which apply are not in substance different from those which applied under the former section. No submission was made in relation to any distinction between the two. Smart J said that the factors relevant to the exercise of the discretion to order security for costs included a number of matters, to the detail of most of which I do not refer, including whether substantially the same facts were likely to be canvassed in determining the action and any cross-action. He said that the Court would be slow to allow a situation where the action was stayed because of the inability to provide security but the cross-action covering substantially the same factual matters proceeded. 14 Of course, the question whether security in any case should be granted is a matter which calls for the exercise of the discretion of the Court. The usual considerations apply in relation to an appeal from the exercise of such a discretion. Although, in a sense, the discretion is at large, there are a number of authorities which now guide courts dealing with problems of this kind in the way the discretion ought usually be exercised. 15 Rolfe J dealt with a number of questions not the subject of any submission in this application. These were whether Dalma's claim was made bona fide and had reasonable prospects of success, whether Dalma's lack of funds had been caused or contributed to by the conduct of Concrete, and Dalma's financial position. These were decided adversely to Dalma. His Honour then came to the question whether substantially the same facts were likely to be canvassed in determining the action and the cross-action. Rolfe J began his discussion of this matter by saying: "In circumstances where the claim and the cross-claim arise out of the same, or essentially the same, factual matrix this, in my opinion, is a very important consideration. It has been frequently and consistently said by Judges sitting in this Division that an order for security will not generally be made in such circumstances, in the exercise of the Court's discretion. It would, in my view, be quite wrong to preclude a party from litigating matters by way of a defence to a cross-claim merely because that party has been the initial institutor of the proceedings. The conduct of the other party may have forced the allegedly impecunious party to take the litigious initiative, whilst not constituting misconduct. Put simply if [Concrete] seeks to recover any part of the debt the issues raised by Dalma in its claim would be available to it as a defence, and there has never been any suggestion that a party could be precluded from defending proceedings, where the defence is bona fide, by reason of impecuniosity. It is, therefore, a somewhat arid exercise to be considering an application for security for costs if the plaintiff can be cast in the role of a defendant and can litigate the very matters the subject of its claim by way of defence." 16 His Honour also said that the situation to which he had referred could be overcome by a defendant if it unequivocally stated that it would not pursue any claims against the plaintiff in the event of an order for security being made and not met. He said that there was logic in a defendant not wishing to pursue cross-claims against an insolvent plaintiff, not the least of which would be the necessity to pay its own costs, and, even if ultimately successful, risk receiving little or nothing. 17 His Honour came to the conclusion that he should not order security for costs. He said that Concrete had not proffered any undertaking that it would not seek to prove as an unsecured creditor either in the voluntary administration or in any liquidation of Dalma. He also said that Concrete had not abandoned its claim to the payments under the deed. He went on to consider the terms of the deed. Eventually he said that there was no suggestion that the mediation between Concrete and Dalma had not ceased and, accordingly, he thought that, under the terms of the deed, the respective rights of set-off or payment had arisen. He added that the difficulty from Concrete's point of view was that the amount to be set-off or paid could not be determined until the disputes between Concrete and Dalma were resolved. He said it was clear that in response to Concrete's claim Dalma would assert that Concrete owed it money in relation to the contract. 18 His Honour concluded this part of his judgment by saying that he considered that, by virtue of the pendency of claims and counter claims arising out of the same or essentially the same factual matrix, the proper exercise of discretion dictated that this was not an appropriate case in which to order security. 19 At the end of his judgment his Honour referred to some other matters. He said that a number of submissions had been made about the stultification of litigation and the ability of a director, shareholder or creditor to provide the security and, in particular, the circumstances in which this may be done. As his Honour said, these matters would only be relevant if security would otherwise be ordered. He had decided not to order it and, accordingly, did not propose to consider the other matters. 20 In the submission of counsel for Concrete, the fact that the mediation between the parties had ceased did not give rise to rights to payment under clause 2.2 of the deed. Those rights did not arise until the earlier to occur of resolution of the matters the subject of the mediation or 1 July 1999. There had been no resolution of the matters the subject of the mediation so that the rights had not arisen. It was also contended that the fact that it was not presently open to Concrete (and was not likely to be open to it until 1 July 1999) to demand the payment of the sum of $175,251.90 from Dalma took the case out of the category of cases which involved a claim and a counter claim which either had been brought or was available to be brought and which arose out of the same, or essentially the same, factual matrix. Counsel said that Dalma could pursue its claims against Concrete and that those claims could be disposed of in advance of any rights arising under clause 2.2 of the deed. It should be noted, however, that, as mentioned above, the case is likely to be fixed for hearing in July 1999. On any view the moneys will become due on 1 July 1999. It seems pointless, therefore, to speak of a hearing of Dalma's claims prior to that date. 21 The submissions of counsel for Dalma may be summarised as follows: (a) The judgment of Rolfe J was correct. "Matters" in clause 2.2 was used in the sense of "proceedings". Otherwise the word "claims" would have been used as it is in the following subparagraphs. (b) Alternatively, it was submitted that the rights under the clause arose when the matters which were the subject of mediation were resolved. The matters would be litigated in the instant proceedings. But, so counsel submitted, the contractual right of set-off entitled Concrete to declaratory relief, enforcement of the right prior to judgment so that judgment was given and entered for the balance only, and an injunction restraining either the entry of judgment or at least enforcement of judgment for any amount which disregarded the set-off. The result was said to be the same whether the contractual rights were asserted in the form of a cross-claim or otherwise. Reference was made to Roadshow Entertainment Pty Ltd v CEL Home Video Pty Ltd (1997) 42 NSWLR 462 where the Court said (at 489) that, in principle, equitable set-off should be available for liquidated cross-demands which were not payable when proceedings were commenced, just as it is available for unliquidated cross-demands before they have been liquidated by verdict or judgment. Equitable relief may not be available in every case of this description, particularly if the cross-demands are not payable for a long time, and terms may be imposed. The Court also said that equitable set-off might not be available in respect of a cross-demand acquired by the debtor after judgment against him. (c) In the submission of counsel for Dalma the result was that the rights which Concrete was asserting would prevent Dalma obtaining an enforceable judgment in the current proceedings. If Dalma recovered less than the debt owed to Concrete, Concrete could pursue the balance in the administration of Dalma. If Dalma does not continue the proceedings, Concrete would prove in the administration or winding up, and the Dalma claims would properly be available to prevent recovery of the sum of $175,251.90, the amount of its claim. 22 In my opinion counsel for Concrete is correct in his approach to the construction of clause 2.2 of the deed. The obligation by Concrete under that clause has not arisen because the mediation has failed and it is not yet 1 July 1999. In my opinion, it would be wrong to construe the clause as if it provided that the obligation by Dalma under it arose when the mediation terminated unsuccessfully. To me the phrase "resolution of the matters" means the final resolution of the claims not just conclusion of the mediation. Nevertheless, I would uphold the alternative argument put by counsel for Dalma that the contractual right of set-off entitled Concrete to declaratory relief and perhaps other relief notwithstanding that the time for the set-off to be made had not arrived. I agree that the decision of this Court in Roadshow Entertainment, which I would regard as being in accordance with general principle, concludes that matter adversely to Concrete. It follows that Concrete would be entitled to raise this matter in the current proceedings and, if no more than approximately $175,000 were involved, it would be a case, at least for the purposes of an application for security for costs, where Concrete should be treated as if it were a plaintiff rather than a defendant. 23 Of course, the dispute about the meaning of the indemnity and considerations about its operation and effect are only a small part of this case. It is obvious from the summary of the pleadings to which I have referred that there are much wider issues at stake and that these involve a great deal more money than does the claim about set-off. Dalma has a claim against Concrete for over $1,000,000 and Concrete has a claim against Dalma for at least as much, if not more. 24 During the oral argument which took place on the hearing of this matter, there was discussion about the significance of this matter. Neither counsel seemed anxious to come to grips with the reality of the true nature of the case. They appeared to be concentrating on what I would regard as a comparatively minor question concerning the meaning and effect of the indemnity. But as Rolfe J said in the paragraphs from his judgment which I have quoted, the fact that a claim and a cross-claim arise out of the same, or essentially the same, factual matrix is a very important consideration. He added that it would be quite wrong to preclude a party from litigating matters by way of defence to a cross-claim merely because that party was the initial institutor of the proceedings. I entirely agree with what Rolfe J has said. He concluded this part of his judgment by saying that it was a somewhat arid exercise to be considering an application for security for costs if the plaintiff could be cast in the role of a defendant and could litigate the very matters the subject of its claim by way of defence. Plainly he would have taken a different view if there had been an undertaking given on behalf of Concrete not to prosecute its cross-claim. One can readily understand the reasons for this but no such undertaking has been given. 25 Having considered what Rolfe J has said in the light of the overall facts and circumstances of the matter, I am not persuaded that the discretion which he exercised miscarried. Accordingly, I would dismiss this application for leave to appeal with costs.

Concrete Constructions v Dalma Formwork

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