Consolidated Constructions Pty Limited v The Satellite Group

14 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3879/00 CONSOLIDATED CONSTRUCTIONS PTY LIMITED v THE SATELLITE GROUP (HAROLD PARK) PTY LIMITED 3653/00 THE SATELLITE GROUP (HAROLD PARK) PTY LIMITED v CONSOLIDATED CONSTRUCTIONS PTY LIMITED

JUDGMENT 1 These two actions were ordered to be heard together, the evidence in one being evidence in other. It is thus convenient to write one judgment only and place it on each file. 2 In proceedings 3653 of 2000 the plaintiff, The Satellite Group (Harold Park) Pty Limited (Satellite) seeks an order setting aside a statutory demand served on it by Consolidated Constructions Pty Limited (Consolidated) under s459E of the Corporations Law. That demand was for moneys claimed to be due as progress payments for building work carried out by Consolidated for Satellite on what was called "The Harold Park Hotel Project". The total amount claimed was $2,117,337.04, which included an amount of $1,000,000 plus $35,140.04 interest thereon, claimed under a loan agreement whereby in lieu of payment of $1,000,000 part of a progress claim, the amount was treated as paid by way of loan. This loan agreement was secured by mortgage on the Harold Park Hotel land. 3 In proceedings 3879 of 2000 Consolidated seeks declarations that this mortgage is valid; and that the Harold Park land is charged with the debt due under the loan agreement. Consolidated also seeks additional relief including judgment for the amount due under the loan agreement. Facts 4 Harold Park Hotel is situated at 121 Wigram Road, Glebe. Development approval was granted by the Leichhardt Municipal Council "the carry out alterations and additions to the Harold Park Hotel creating 50 hotel suites and their subsequent strata sub-division". Various conditions were imposed, those relevant being Nos 52 to 57 as follows: 52. Five of the proposed dwellings are to be adapted to suit the needs of people with disabilities in accordance with Councils Development Control Plan No.32 Clause 3.5. Details are to be provided with the Building Application and is to be to Councils satisfaction. 53. For each adaptable dwelling, one carparking space must be provided for use by people with a disability, that is consistent with the dimensions specified in Councils Development Control Plan No. 32 and with AS 2890.1 - Offstreet parking. Details are to be submitted with the Building Application and is to be to Councils satisfaction. 54. The contract for the sale of the individual suites is to contain a clause requiring the purchaser to lease the suite back to the hotel operator and preclude the owner for having any control over the use of the suite. Details are to be submitted to Councils satisfaction with the Part 37 Application. 55. A by law is to be imposed upon the creation of the strata scheme to the effect that none of the strata hotel rooms are to be used for permanent accommodation, being a limit of 90 days on the length of stay of the occupiers and/or owners. Details are to be to Council's satisfaction and is to be submitted with the Part 37 Application. 56. A Section 88B Instrument is to be prepared imposing on the title of each of the allotments that the strata allotments are not to be used for permanent accommodation, being a limit of 90 days on the length of stay of the occupiers and/or owners. Details are to be provided with the Part 37 Application and is to be to Councils satisfaction. 57. There shall be a Manager/Supervisor on-site 24 hours a day who shall be responsible for enforcing conditions of consent on both building and development applications in relation to operation of the premises and for liaison with members of the public and Council.

A construction certificate was issued on 29 September 1999, which described the work as follows "alterations and additions to the Harold Park Hotel. Erect new residential accommodation." 5 No contract was entered into although there were negotiations for one. Work commenced in September 1999. There were some funding difficulties and in December 1999 Satellite requested that work on the project be slowed down. According to Mr Yovich, a director of Consolidated, by late January 2000 contract negotiations were finalised but Satellite would not sign as it did not have funding in place. Work stopped on 11 February 2000, it is said by agreement. 6 Progress claims for work were submitted as follows:

14.12.99 $1,220,308 14.01.00 $ 993,584 14.02.00 $ 423,090 $2,636,982

It seems that Consolidated had its claims re-assessed by W.T. Partnership, Quantity Surveyors, and as a result reduced the total claims to $2,302,197. Of that amount $220,000 has been paid. The statutory demand is for $2,302,197, less the $220,000 plus interest of $35,140.04, claimed on the $1,000,000 being part of the debt due under the loan agreement. The amount of the demand is $2,117,337.04. 7 The loan agreement is dated 7 February 2000. It recites that Consolidated has agreed to advance to Satellite the principal sum of $1,000,000 on terms and conditions as agreed. The maturity date is 15 April 2000. Works are defined as "the construction work already carried out on the Harold Park Hotel property." Clause 2 of the loan agreement is as follows: 2. THE LOAN 2.1 The Lender has agreed to advance the Principal Sum to the Borrower on the date of this agreement by way of the Lender foregoing requiring payment of the amount of one million dollars ($1,000,000) in respect of the construction of part of the Works. 2.2 The Borrower acknowledges receipt of the Principal Sum from the lender on the date of this agreement (being part of the first progress claim made by the Lender to the Borrower in respect of the Works). 8 The deed also provided for repayment of loan without interest at the maturity date and interest thereafter at the default rate defined as "the Australian and New Zealand Banking Group Limited's Reference Rate plus 3%". 9 Pursuant to the agreement a mortgage was executed on 7 February 2000 over the Harold Park Hotel land to secure the obligations under the agreement. 10 The managing director of Satellite in an affidavit sworn on 18 August 2000 has claimed that there was no agreement as to when moneys were payable, but that in other projects with Consolidated, involving Satellite, payments are due thirty days after practical completion. That could have little relevance here. He also says that work was not carried out in accordance with plans and that work is defective, but there is no evidence to support these bald assertions. In fact the evidence goes to show that funding was the real problem for Satellite, as by letter of 19 February 2000 the company told Consolidated that it was negotiating with a new proposed financier, was obtaining an independent bill of quantities, and that it was intended to pay Satellite for the value of the work when that was done, provided that the new funding was in place. 11 It is agreed that no contract of insurance under s92 of the Home Building Act 1989 (the Act) has been obtained by Consolidated in respect of its building work. Arguments 12 Satellite says:

A. That there is no liability to pay the amounts of progress claims not agreed;

B. That the work is "residential building work" within the meaning of the Act and accordingly, in the absence of a contract of insurance, s94 of the Act prevents any claim for recovery of any amount for such work; and

C. That any claim under the loan agreement and mortgage is a claim for payment for building work. 13 Consolidated says:

A. That the work is not "residential building work" because it is not work involved with the construction or alteration of a dwelling; or

B. If it would otherwise be work involving a dwelling it is excluded from the operation of residential building work by the Home Building Regulation 1997 Clause 6B as being a residential part of a hotel or motel. Legislation 14 The Home Building Act 1989

Section 4 - Definitions Dwelling - means a building or portion of a building that is designed, constructed or adapted for use as a dwelling (such as a detached or semi-detached house, transportable house, terrace or town house, duplex, villa-home, strata or company title home unit or residential flat). It includes any swimming pool or spa constructed for use in conjunction with a dwelling and such additional structures and improvements as are declared by the regulations to form part of a dwelling.

It does not include buildings or portions of buildings declared by the regulations to be excluded from this definition. residential building work means any work involved in, or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling, or (b) the making of alterations or additions to a dwelling, or (c) the repairing, renovation, decoration or protective treatment of a dwelling.

It includes specialist work done in connection with a dwelling and work concerned in installing a prescribed fixture or apparatus in a dwelling (or in adding to, altering or repairing any such installation).

It does not include work that is declared by the regulations to be excluded from this definition. 15 Section 7 provides a contract for residential building work must be in writing and s7(2) sets out certain requirements for inclusion in that contract.

16 Section 10 10 Enforceability of contracts and other rights

(1) A contract to which the requirements of section 7 apply that is not in writing or that does not have a sufficient description of the work to which it relates is not enforceable by the holder of the licence against any other party to the contract.

(2) Subsection (1) does not apply to a contract entered into in the circumstances described in section 6 (2).

(3) A person who contracts to do work in contravention of this Division or who contracts to do work under a contract that does not comply with this Division: (a) is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, but (b) is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person.

(4) This section does not affect the liability of the person for an offence against a provision of or made under this or any other Act. 17 Section 11 11 Other rights not affected

This Division does not affect any right or remedy that a person (other than the person who contracts to do the work) may have apart from this Act. 18 Section 92(1) and(2) 92 Contract work must be insured

(1) A person must not do residential building work under a contract unless:

(a) a contract of insurance that complies with this Act is in force in relation to that work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.

(2) A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.

Maximum penalty: 100 penalty units. 19 Section 94(1)(2)(3) 94 Effect of failure to insure residential building work

(1) If a contract of insurance required by section 92 is not in force in relation to any residential building work done under a contract (the uninsured work ), the contractor who did the work: (a) is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and (b) is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).

(2) However, the contractor remains liable for damages and subject to any other remedy in respect of any breach of the contract committed by the contractor.

(3) Residential building work that is uninsured work at the time the work is done ceases to be uninsured work for the purposes of this section if the required contract of insurance for the work is subsequently obtained.

Note. If a contract of insurance is in force in relation to part of the residential building work ,this section applies only in relation to the part of the work that is not insured. Home Building Regulation 1997 20 Clause 6(f) excludes from the definition of dwelling "all residential parts of a hotel or motel". Is the development concerned with construction of dwellings? 21 Counsel for Consolidated says that the strata units to be constructed are not dwellings, first because of their lack of facilities; and second because of the requirements imposed by the conditions of the development approval which I have set out. The first argument is without foundation. The units have sleeping, living and bathroom facilities. Some of them are small and some of them are quite large. Lack of laundries cannot bear on this. Dwelling normally connotes a place where a person may live and a person may live in these units comfortably. 22 the second argument focused on the 90 day limit set down by the council in condition 55. I do not consider that a 90 day occupation limit is sufficient to make the units other than dwellings. In Roberts v Waverley Municipal Council (1988) 14 NSWLR 423 a women's refuge where periods of occupancy would be short was held to be a dwelling house under the Landlord and Tenant Act 1899 which would support my view as to this. Is the dwelling a residential part of a hotel or motel? 23 As I have said Clause 6B of the Home Building Regulation excludes from the definition of dwelling, for the purpose of the Act, "all residential parts of a hotel or motel". This is a matter of some complexity and were it not for the claim in 3872 of 2000 it would not be necessary to come to any firm decision because it would be possible to hold that there was a genuine dispute about the existence of the debt to which the demand related so that, pursuant to s459H of the Corporations Law, the statutory demand should be set aside. Nevertheless because of the claims about the $1 million it is necessary to decide this question. 24 I have come to the conclusion that Satellite could not obtain protection by relying on the provisions of the Act because I consider that the units are residential parts of a hotel. It was generally accepted that the provisions for strataing were one way of obtaining finance for the project. When one looks at the layout of the hotel with the additions, the way in which entrance to the whole of the site is obtained the development approval and the controls placed on the project by Council it seems to me to be clear that the whole site should be treated as one and should be regarded as a hotel albeit with some of the residential facilities allowing for more long term occupation than would be normal in a hotel. Counsel for Satellite argued that one of the purposes of the insurance provisions of the Act was to protect successors in title to the original owner but that does not necessarily mean that the units would not be part of the hotel. Lack of the contract 25 Sections 7, 10, 92 and 94 of the Act all relate to work under contracts. The evidence is that there was no contract so that these provisions do not apply. Satellite has said there was no contract so that any defence based on the Act would fail. I should add that this was not the subject of any argument, but it would be another reason to conclude that the Act does not aid Satellite even if the work were in respect of a dwelling within the statutory definition. Is there any other dispute or offsetting claim? 26 This question must be decided to see whether there is a genuine dispute about the existence of the debt in respect of which the statutory demand issued. I have come to the conclusion that leaving aside the question of the $1 million and interest on it, which I will determine separately, there is a dispute. The claim of Consolidated seems clearly to be based on a quantum meruit for the work done arrived at by a calculation of the value of that work determined by a quantity surveyor. While there is no evidence put forward by Satellite as to its claim for defective work, that does not mean that there is any basis upon which the claim of Consolidated should be accepted as proper. Without the court having any basis to determine what would be the proper figure it seems to me that can only be determined by agreement or by action. Any liability for progress payments normally depends upon terms of a contract. Thus leaving aside the figure as to $1 million and interest thereon I would hold that the statutory demand should be set aside. Loan agreement debt secured by mortgage 27 I have already determined that s94 of the Act, upon which Satellite relied is of no avail, because it refers to building work done under a contract and here there is no contract. As this was the only matter upon which Satellite relied, that is the end of the matter, and Consolidated is entitled to judgment for the amount due under the agreement and appropriate declarations as to the validity of the mortgage. Nevertheless it is probably desirable to go a little further and consider the other arguments raised. 28 The argument of Satellite is that the claim under the amended summons, at least insofar as it seeks an order that the Harold Park Hotel land be sold under supervision of the court, and a judgment in the sum of $1 million plus interest are claims for recovery within s94(1)(b) of the Act. 29 I consider that the effect of clause 2 of the loan agreement is to convert the claim for payment of $1 million being part of the first progress claim from such a claim into a debt due from Satellite to Consolidated under the terms of the loan agreement. Satellite has acknowledged receipt of the sum of $1 million and Consolidated has accepted its rights under the loan agreement in lieu of its rights as to $1 million under the first progress claim. It follows that $1 million from the first progress claim has been paid, by its being converted into a debt under the loan agreement. If there were a contract and if the work were residential building work, then it would be an offence under s92(2) of the Act to receive the payment of $1 million. That, however, would not in itself give a right to recover any amount so received by the builder nor would it make the loan agreement unenforceable. There is nothing in the Act which prevents a builder lending to an owner an amount of money to be applied in payment by the owner to the builder of amounts due to the builder. It was not argued on behalf of Satellite that there was some right to recover the amount so paid. The claim for recovery of the amount due under the loan agreement is not a claim for payment in respect of the building works. As there has been a default through failure to pay $1 million on the maturity date, Consolidated is entitled to judgment for that amount and interest from 15 April 2000 until judgment. That amount of interest will have to be calculated and presumably can be agreed. 30 It follows from this that the mortgage is valid. Consolidated is entitled to a declaration as to the validity of the mortgage and that it has a caveatable interest in the Harold Park Hotel land. It is entitled to the declaration sought in paragraphs 1, 2 and 3 of the amended summons and the orders sought in paragraph 4. It does not seem to me that it is necessary to give the relief claimed in paragraph 5, that the land be sold under supervision of the court. If the mortgage cannot be registered because either the first or second mortgagee is entitled properly to withhold consent to the registration, then clause 17 of annexure A to the mortgage would give sufficient powers to Consolidated to effect a sale. Consolidated is entitled to judgment in the sum of $1 million plus interest and I will enter judgment for that amount provided interest can be calculated. 31 So far as the statutory demand is concerned, the result of this is that a determination must be made under s459H. The admitted amount under the demand is $1,035,140.04. There is no offsetting claim. Thus the substantiated amount is $1,035,140.04. It is necessary to make an order under s459H4 varying the demand for that amount and declaring that demand to have had effect as so varied from the date of service of the demand. It will then follow that the period for compliance with the demand ends seven days after the date of the order. Proposed Orders 32 In proceedings 3653 of 2000:

1. Order that the demand be varied so that the total debt outstanding claimed under the demand is $1,035,140.04.

2. Declare the demand to have had effect as so varied as from the date when the demand was served on the plaintiff.

3. Order that the plaintiff pay eighty percent of the defendant's costs of the action.

4. Exhibits may be returned. 33 In proceedings 3879 of 2000.

1. Make the declarations sought in paragraph 1, 2, and 3 of the amended summons.

2. Make the order as sought in paragraph 4 of the amended summons.

3. Judgment for the plaintiff against the defendant in the sum of $1 million (plus interest to be calculated).

4. Order that the defendant pay the plaintiff's costs of the proceedings.

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