By Notice of Motion filed 15 December 2020, the plaintiff seeks an order for payment of the judgment sum out of Court, to it, for the purpose of paying amounts owed to subcontractors. This involves setting aside a prior agreement between the parties to stay enforcement of the judgment in this matter pending the outcome of related proceedings on the basis that the judgment sum was paid into Court on or before 7 August 2020.
[2]
Factual and Procedural Background
On or about 3 July 2018 the plaintiff, Mosman Building and Constructions Pty Ltd (MBC), and the defendant, Banz Pty Ltd (Banz), entered into a contract to construct 12 residential units, basement parking and landscaping at 1407 Pacific Highway, Warrawee.
MBC issued 20 progress claims for payment. The last progress claim for payment issued was for an amount of $734,014.42.
MBC proceeded to adjudication under the Building and Construction Industry Security of Payments Act 1999 (the Act). The adjudicator awarded MBC an amount of $249,198.59.
On 29 May 2020 MBC registered the Adjudicator's Determination and obtained a judgment in these proceedings in the sum of $273,448.15 (the Adjudication Proceedings).
MBC was paid the sum of $24,918.59 after that amount was withdrawn from Banz's bank account pursuant to a garnishee order.
On 9 July 2020 Banz commenced proceedings in this Court (2020/203174) (the Substantive Proceedings) seeking damages:
1. for breach of contract against MBC; and
2. for misleading and deceptive conduct against MBC and its sole director Kevin Murphy.
On 19 July 2020 Banz filed a Notice of Motion in the Adjudication Proceedings seeking a stay of the proceedings pending the outcome of the Substantive Proceedings.
On 30 July 2020 the parties agreed to compromise the Notice of Motion and a Consent Order was signed in the following terms:
1. That the Defendant pays into Court the amount of $248,059.50 on or before 5pm on Friday 7 August 2020 in relation to the Adjudication Certificate for Adjudication Application No. 2020ADJT173 dated 28 March 2020;
2. Upon the payment in paragraph 1 above being paid into the Court by 5pm on Friday 7 August 2020, all proceedings on the judgment in these proceedings be stayed until determination of proceedings No. 00203174 of 2020 or as agreed between the parties or as the court otherwise orders.
3. The plaintiff by its solicitors undertakes not to take any steps to enforce the judgment debt before 5pm on Friday 7 August 2020.
4. The Defendant by its solicitors undertakes to prosecute proceedings No. 00203174 of 2020 with all reasonable dispatch.
5. Upon payment of the amount of $248,059.50 into Court the Defendant's motion dated 10 July 2020 is dismissed.
On 10 August 2020 MBC filed a Defence in the Substantive Proceedings.
On 8 September 2020 directions were made by consent for Banz to file its affidavit and expert evidence in the Substantive Proceedings by 9 December 2020.
Banz did not comply with the Court's direction and failed to serve any evidence by 9 December 2020.
On 15 December 2020, MBC filed the Notice of Motion in the Substantive Proceedings that is presently before the Court.
On 10 February 2021 directions were made by the Judicial Registrar for Banz to serve its affidavit and expert evidence in the Substantive Proceedings by 15 February 2021.
On 5 March 2021, at the hearing of the Notice of Motion, Banz had not complied with the Court's direction to serve its evidence by 15 February 2021. No evidence of any explanation for the failure to comply with the Court's directions was proffered by Banz.
[3]
The relevant law
Where consent orders represent an agreement between the parties, a Court should not ordinarily set aside that agreement unless it is void, voidable or liable to be set aside in equity: Harvey v Phillips (1956) 95 CLR 235.
It was common ground that the Court has power to vary an interlocutory consent order, as an exercise of its power to control its own proceedings: R D Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) FCR 389.
The interpretation of orders turns on the meaning and effect of the words used as a whole and given effect on their terms: Australian Securities & Investment Commission v Matthews (2009) ACSR 559 at [9] (Barrett J). Broadly speaking their interpretation involves the same approach as to the interpretation of a contract: Perry Herzfeld and Thomas Prince, Interpretation, Second Edition, Thomson Reuters, Sydney, 2020 at [36.20].
Where there is ambiguity in construing consent orders reflecting the compromise of a dispute, it is permissible to take into account evidence of the surrounding circumstances known to the parties: Kilpatrick v Kotis (2004) 62 NSWLR 567 at [47] and [57] (Campbell J).
The same general approach to construction of orders applies to undertakings given to the Court: S & M Motor Repairs Pty Ltd v Caltex Oil (Aust) Pty Ltd (1988) 12 NSWLR 358 at 387 (Priestley and Clarke JJA).
The task of identifying the legal meaning of provisions in a commercial contract is to identify the imputed intention of the parties by reference to the contractual text construed in the light of its context and purpose: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[51].
A court will take an objective approach to interpreting the contract. In a commercial agreement, the question is what a reasonable business person would have understood the terms to mean, taking into account the language used, the surrounding circumstances known to the parties and the commercial purpose of the objects to be secured. The last requirement is facilitated by understanding the genesis of the transaction, the background, the context and the market the parties are operating in. Unless the contrary is indicated, the court is entitled to approach interpretation on the basis that the parties intended to produce a commercial result. A commercial contract should be construed to avoid it making a commercial nonsense or working a commercial inconvenience: Electricity Generation Corporation v Woodside Energy Ltd at [35].
Evidence of prior negotiations, which may reflect the subjective intentions of the parties, is admissible only to the extent that it establishes objective facts known to both parties to elucidate with greater precision, the commercial purpose or the subject matter of the contract: WIN Corporation Pty Ltd v Nine Network Pty Ltd [2016] NSWCA 297 at [57]. Evidence of the parties' subjective intentions is not relevant to construction of a contract: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]. Evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J (Stephen and Wilson JJ agreeing).
Evidence of surrounding circumstances cannot be used to detract from the contractual text used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of the contract is unambiguous the Court:
1. must give effect to that language unless to do so would give the contract an absurd operation: Newey v Westpac Banking Corporation [2014] NSWCA 319 at [91]; and/or
2. cannot depart from the ordinary meaning of the words because it regards the result as inconvenient or unjust: McGrath v Suresteps; Suresteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690 at [17].
A condition is a term, the breach of which will justify the termination of the contract. Conditions are essential terms of the contract. The test of essentiality is if it appears from the contract as a whole, or particular terms, that the promise is of such importance that the promisee would not have entered into the contract unless they were ensured of strict compliance with it: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 (Jordan CJ), cited with approval in the High Court on appeal and in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322.
The determination of whether a term is a condition depends on the construction of the contract. It is the intention of the parties, expressed in the language of the contract understood in the context of the relationship established by that contract, the commercial purpose it served (if applicable), that determines whether a term is "essential" so that any breach will justify termination: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [48].
A party may terminate a contract for a sufficiently serious breach of an intermediate term. A breach of an intermediate term is sufficiently serious to justify termination if the event "goes to the root of the contract" or in other words it would deprive the injured party of substantially the whole of the benefit that it was entitled to under the contract. The determination of what the injured party was entitled to rests on a construction of the contract at the time of entry into the contract. The analysis takes into account the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party. A further material consideration is the adequacy of damages for the breach as a remedy, because that is the corollary to allowing the injured party to terminate: Koompahtoo at [49]-[55].
[4]
MBC's submissions
MBC submits that the continuation of the stay is preventing the application of the scheme of the Act and no injustice will be effected by its dissolution, where there is no evidence that MBC is insolvent.
[5]
Banz's submissions
Banz submitted that the Consent Order represented a compromise agreement between the parties to bring the interlocutory dispute to an end and that the agreement of the parties should be respected and enforced because:
1. MBC has not established that the agreement is void, voidable or liable to be set aside in equity;
2. the efficient and economical case management provisions, enacted in ss 56-61 Civil Procedure Act 2005 require that interlocutory disputes should be resolved by agreement.
Banz further submitted that the Court should not make the orders sought by MBC because:
1. the scheme of the Act provides that parties "pay now and argue later", to the effect that the final position between the parties cannot be ascertained until the Substantive Proceedings have been determined;
2. the Consent Order was not specified to be "without admissions" and is therefore some evidence of MBC's limited solvency;
3. MBC has not put on evidence of its financial position;
4. payment of the subcontractors would render some of the final relief sought in the Substantive Proceedings nugatory;
5. MBC's motion is based on the premise that the bulk of the judgment sum will be dispersed through the payment of the subcontractors;
6. there is a dispute as to whether or not some of the subcontractors are owed money;
7. the subcontractors have other available avenues provided for by the Act to compel Banz to pay any money they may be owed;
8. MBC has not demonstrated that it will suffer harm if the subcontractors remain unpaid.
[6]
Consideration
It is clearly established that Banz has not complied with its undertaking to prosecute the Substantive Proceedings with all reasonable dispatch. On the evidence before me, Banz has not taken any step towards progressing the Substantive Proceedings since they were filed and it has failed to comply with two sets of the Court's directions to do so. Banz has not given any explanation for its failure to comply with the Court's orders or its undertaking.
If Banz's undertaking in order 4 of the Consent Order is construed as an undertaking to the Court, its breach is a very serious matter that would justify the Court in exercising its discretion to control its own proceedings by imposing a new interlocutory regime on the parties.
If I give the benefit of the doubt to Banz, then its undertaking was an express promise to MBC to prosecute the Substantive Proceedings with all reasonable dispatch. In construing the agreement contained in the Consent Order as a whole and by reference to the surrounding circumstances, I am satisfied that the undertaking was an essential term of the agreement between the parties and that MBC would not have entered into the agreement unless the undertaking was to be strictly complied with.
On this analysis, Banz has breached a condition of the agreement provided for in the Consent Order and MBC is entitled to terminate the agreement.
If I am wrong that Banz's undertaking was a condition of the agreement, then the agreement can still be terminated for a sufficiently serious breach of an intermediate term. I am satisfied that Banz's breach of the undertaking is sufficiently serious for the agreement to be terminated for the following reasons. First, MBC's agreement to the stay prevents its enforcement of the judgment until the Substantive Proceedings were completed. A substantial benefit that MBC got from the agreement was that the Substantive Proceedings would be dealt with expeditiously. Second, the extent of the breach by Banz is significant particularly since it involves an unexplained non-compliance with the Court's orders. Third, there is little scope for the Court to award damages in favour of MBC and therefore damages would not be a sufficient remedy. Fourth, Banz's breach has unwanted consequences of delay in resolving the Substantive Proceedings as well as for third parties, in the continuing failure to pay the subcontractors.
I am satisfied that Banz has committed a sufficiently serious breach of the agreement and that MBC is entitled to terminate the agreement.
The evidence suggests that MBC may have limited solvency, but neither party has put on sufficient evidence for that issue to be determined by the Court. Banz contends that the stay should be maintained on the basis that MBC has limited solvency and accordingly the onus to prove this issue fell on Banz. I am not satisfied on the evidence that Banz has discharged its onus on this issue.
[7]
Orders
The orders I make are as follows:
1. The stay of enforcement of the judgment entered on 31 July 2020 is dissolved.
2. The amount of $248,059.50 retained in the District Court Trust Account and any interest accrued thereon since 7 August 2020 be paid to the Plaintiff, by payment to its solicitor's Trust Account.
3. The plaintiff's solicitor is to make payments from its Trust Account to the subcontractors set out in column 2 of the table appearing at [51] of the Affidavit of Kevin John Murphy affirmed 14 December 2020, being the amounts MBC concedes it is liable to pay to those entities.
4. The defendant is to pay the plaintiff's costs of the Notice of Motion as agreed or assessed.
5. The costs of the Notice of Motion can be assessed forthwith.
[8]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 12 March 2021