Interlocutory injunction - Building contract - Weighing up probability of ultimate success - Interlocutory injunction which would dispose of the action finally - Effectively mandatory injunction - Effectively specific performance of building contract

1 (This judgment was delivered extemporaneously on 9 May 2008 and has been edited from the transcript.)

2 The plaintiff, Crouch Developments Pty Ltd (the builder), applies for an interim injunction restraining the defendant, D & M (Australia) Pty Ltd (the owner), from acting upon or giving effect to either a notice of default or notice of termination, given by the owner to the builder, pursuant to provisions of the building contract which has been entered into by the parties.

3 The writ which commenced these proceedings carries an indorsement of the relief sought by the builder in the proceedings and the only substantive relief identified in that indorsement is the claim for an interim injunction which has now been brought. The application is supported by an affidavit of Darrell John Crouch who is a director of the builder. He deposes to entry into the building contract which is annexed to his affidavit.

4 The contract is dated 24 January 2006 and relates to the construction of 27 units on land situated in Scarborough Beach Road, Mount Hawthorn. The period for completion of the works specified in the contract is the period of 52 weeks. That period commences from the grant of the building licence. The building licence was granted on 15 May 2006.

5 Accordingly, on that basis, had the contract been performed by both sides it should have been complete by May 2007. It is clear from the affidavit of Mr Crouch and Mr Chen that work continues to be required in order to bring the buildings to practical completion.

6 The contract contains a number of relevant provisions. The first is cl 11 which covers delay and extensions of time. Pursuant to that clause, in the event of delays arising for a number of specified reasons, the builder is required to give notice in writing to the owner of those delays within seven days and in that notice seek an extension of time for completion of the works. It is clear from the evidence that, notwithstanding the builder's allegations of delay on the part of the owner, no notices have been given pursuant to cl 11. While the specific reasons for notice listed in cl 11(a - f) do not include delay caused by the owner, cl 11(g) provides that notice should be given in relation to delays '[b]y any other matter, cause or thing beyond the control of the Builder'.

7 Clause 13 of the contract makes provision for termination by the owner in certain defined circumstances, including the circumstance in which the builder fails to proceed with the works with due diligence and in a competent manner.

8 Clause 26 of the contract contains a provision whereby the owner charges the land upon which the works are to be performed with the payment of all moneys due under the building contract as and by way of security for the payment of those moneys. It should be noted that there is an arbitration clause in the contract (cl 23).

9 The affidavit of Mr Crouch deposes to a number of problems that arose in the course of carrying out the building work. He says that those problems related to the importation of items to be used in the building works from China and the use of labourers and tradesmen who had been brought from China to carry out the building works. The general thrust of Mr Crouch's affidavit is that those matters, being matters for which the owner is responsible, gave rise to significant delays and that therefore the delay in completion of the works is not a matter for which the builder should be held responsible.

10 However, it is clear from the materials that are annexed to Mr Crouch's affidavit that there has been a dispute between the parties in relation to the adequacy and timeliness of the work performed by the plumber who was engaged by the builder as a subcontractor. In particular, the emails that are annexed to Mr Crouch's affidavit reveal a series of allegations by the owner to the effect that, despite assertions to the contrary, the plumber had failed to provide sufficient workmen at the times required in order to diligently progress the building works.

11 As a result of that dispute, by a notice dated 11 April 2008, the owner gave notice of default to the builder alleging failure to proceed with the work with due diligence and in a competent manner. In particular, the notice alleged that the completion of the works was long overdue and that there was insufficient work being carried out to bring the works to completion.

12 By a notice dated 29 April 2008 the owner purported to terminate the building contract by reason of the failure of the builder to rectify the default alleged in the notice dated 11 April 2008. That termination was purportedly made pursuant to cl 13 of the contract which provides that in the event of a failure to remedy a default, which is the subject of a notice from the owner to the builder for a period of ten days after that notice has been served, the owner is entitled to terminate.

13 The affidavit of Mr Crouch refers to the consequences which he says will flow from termination if injunctive relief is not granted. They include the builder's exposure to liabilities under warranty in respect of the work done to date, damage to reputation and also, apparently, an apprehension that there may be some difficulty in securing payment of the balance of the moneys due under the building contract. It is also apparent from the affidavit of Mr Crouch that the builder has lodged a caveat over the land pursuant to the security granted by cl 26 of the contract, to which I have already referred.

14 The defendant relies upon two affidavits of Mr Kevin Chen. In the first of those affidavits, Mr Chen deposes to the fact that no notification has been given by the builder to the owner seeking any extensions of time. He also deposes that instructions were given to the solicitors acting on behalf of the owner to serve the notices to which I have referred because of what Mr Chen describes as the considerable delays by the builder in progressing the completion of the building works and an alleged continuing failure to make arrangements for the plumber to provide a sufficient workforce on site to progress plumbing works as part of the project.

15 Mr Chen deposes to damage which the owner is allegedly suffering by reason of delay in completion of the works and also deposes to the fact that since service of the notice of termination, the owner, who is also a registered builder, has, in fact, taken over the works and engaged a number of different tradespersons to carry out the works on site so as to progress the works to practical completion. In particular, the owners engaged a new plumber who commenced on site on 5 May 2008. Mr Chen further deposes that completion could take place by around the end of this month, that is, the month of May due to the owner's efforts.

16 The principles governing the grant of interlocutory relief in cases of this kind are well established. The general principles were recently enunciated once more by the High Court in the case of the Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57. I take the principles governing the grant of relief of this kind to be those explained by Gummow and Hayne JJ, at [65] and following.

17 In those paragraphs their Honours refer to the requirement that the plaintiff make out a prima facie case which was, of course, established by the leading decision in this area, the case of Beecham Group Ltd v Bristol Laboratories [1968] HCA 1; (1968) 118 CLR 618. As Gummow and Hayne JJ point out, when using the expression 'prima facie case' in the Beecham decision, their Honours in the High Court did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. Rather, it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. The joint judgment of Kitto, Taylor, Menzies and Owen JJ in Beecham (at 622) stated:

How strong the probability needs to be depends, no doubt, upon the nature of the rights he asserts and the practical consequences likely to flow from the order he seeks.

18 As their Honours in Beecham point out, the governing consideration is the requisite strength of the probability of ultimate success and this is dependant upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought.

19 In ABC v O'Neill at [72], Gummow and Hayne JJ point out that the reference to practical consequences is illustrated by the particular considerations which arise where the grant or refusal of an interlocutory injunction would, in effect, dispose of the action finally in favour of whichever party succeeded on the application. That is a pertinent consideration in this case given that it seems clear to me that the grant of an interlocutory injunction would, in the terms sought by the builder, effectively be the grant of final relief. That is because this case concerns a contract in respect of which the work required to complete the building work can be carried out in a matter of weeks. It would be impossible for the court to finally determine, within that period, which of the competing contentions of the parties is correct, and in particular, whether the owner is, in fact, entitled to terminate. Accordingly, the grant of the interlocutory relief sought would, in this case, effectively constitute the grant of final relief. That proposition is reinforced by the terms of the writ to which I have already referred.

20 It is also a most material consideration that, although the relief sought in this case is expressed in negative terms, in effect what is being sought is a mandatory injunction, that is, a positive injunction requiring the parties to continue to perform their respective obligations under the contract. In effect, the interlocutory relief sought would amount to the specific performance of a building contract. Neither the consideration that the relief sought is in substance mandatory nor that it is in substance specific performance of a building contract materially alter the applicable legal test but they are important considerations in the exercise of the discretion to which the High Court referred in Beecham and ABC v O'Neill.

21 In relation to building contracts, it is not the case that specific performance will never be granted in respect of such contracts: Meagher RP, Heydon JD and Leeming MJ, Equity Doctrines and Remedies (4th ed 2002) at [20-080]. However, as the authors of that text observe (at 21-215), generally speaking, neither specific performance nor interlocutory injunctions having the effect of specific performance will be granted in respect of building contracts in other than exceptional circumstances.

22 Authority to that effect is also to be found in a number of cases including the decisions in Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93 and also in Nepean-YKK Pty Ltd v Leighton Contractors Pty Ltd (Unreported, SC (Vic) (Phillips J), No 12178 of 1991, 24 October 1991).

23 So in a case in which the relief sought would effectively amount to the specific performance of a building contract and would effectively amount to the grant of final relief, it seems to me that I would only be justified in granting relief of that kind if the plaintiff had made out a very strong case indeed; a case in respect of which the court could have a high degree of satisfaction that it would ultimately succeed at trial.

24 This does not appear to me to be such a case. On the material that I have seen, there is plainly a dispute between the parties as to the operative cause of the delay in bringing the works to completion. The builder wishes to assert that those delays were entirely attributable to matters for which the owner is responsible. On the other hand, the owner wishes to assert that at least some of those delays came about as a consequence of delays on the part of the plumber who is a subcontractor for the builder and whose delay is therefore the responsibility of the builder. That is precisely the issue which is thrown up by the issue of the purported notice of termination.

25 The builder relies upon the decision of Kaye J of the Supreme Court of Victoria in the case of State Transport Authority v Apex Quarries Ltd [1988] VicRp 26; [1988] VR 187. In that case, the court granted an injunction restraining a party from acting upon a notice of purported termination. However, there are at least two reasons why that case can and should be distinguished. The first is that the case concerned a contract which was to operate for a period of 15 years and in respect of which one of the parties, the plaintiff seeking the interlocutory relief, had expended substantial money in reliance upon the contract persisting for that period (in that it had provided and acquired a freight train, 25 specially modified freight wagons and two locomotives in order to perform the work under the contract which was the carriage by rail of crushed stone).

26 So in that case, where the contract had another nine years to run, there was no suggestion that the grant of the interlocutory relief was in substance final because, of course, the question of whether there was an entitlement to terminate could be resolved well before the time at which the contract was due to expire.

27 The second basis for distinguishing State Transport Authority is the finding of fact in that case that the contract was not a contract which would require the continuing supervision of the court. This was because the obligations of the parties were relatively straightforward, that is, to carry crushed stone by rail and pay for that carriage. That would not be the case here; because this is a building contract.

28 It is clear that there have been differences between the parties in the past as to how their contract should be performed. This is therefore one of those contracts in which continuing supervision by the court would be required if injunctive relief were to be granted.

29 The builder also relies upon cases dealing with the grant of interlocutory relief to protect a right to enter and occupy land such as Cowell v Rosehill Racecourse Co Ltd [1937] HCA 17; (1937) 56 CLR 605. However, it does not seem to me that those cases are sufficient to carry one to the conclusion that this is a case in which interlocutory relief should be granted. That is because the builder's entitlement to remain on site depends critically in this case upon the question of whether or not the notice of termination was validly given. If, as the owner contends, the notice of termination was validly given, that right to remain on site was forfeited and the grant of the interlocutory relief would therefore give to the builder something to which he is not legally entitled.

30 So in conclusion, although there is plainly a serious question to be tried in this case the builder has not demonstrated the strength of the case that would be required before the court could take the exceptional step of granting interlocutory relief which would effectively be final in nature and amount to the granting of a mandatory injunction which would in substance take the form of specific performance of a building contract.

31 It does not seem to me that in this case there is any particular reason why the builder should not be confined to the damages which he will no doubt be entitled to if he can establish, in due course, that the owner had no entitlement to terminate. Those damages can include any established damage to reputation and any exposure to warranty as the builder asserts. For those reasons, it is my opinion that in this case interlocutory relief should not be granted and I will dismiss the application. Because the only relief sought by the writ was the interlocutory relief which has been refused, the builder accepts that it follows that the action should also be dismissed with costs.