Reliance Developments (NSW) Pty Limited v Lumley General Insurance Limited

Supreme Court of NSW|2008-03-07|Before: Bryson AJ

CITATION : Reliance Developments (NSW) Pty Limited v Lumley General Insurance Limited [2008] NSWSC 172 This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : (1) Give judgment for the defendant with costs. (2) Dismiss the Cross-claims.

CATCHWORDS : GUARANTEE and INDEMNITY - deposit bond in lieu of deposit on sale of land - P obtained issue by Lumleys of Deposit Bond to V - P defaulted, V terminated and claimed under Deposit Bond - by mistake, the wrong document was included with the claim as copy Notice of Termination - Lumley's agent refused payment on this ground but notification did not reach V's solicitor until after expiry of Bond - consideration of construction of Deposit Bond and need for strict compliance with provisions about formalities of claims HELD - strict compliance required by terms of bond, no entitlement to recovery, agent's conduct was not unconscionable.

LEGISLATION CITED : Trade Practices Act 1974 (Cth), s 51AA

Alcatel Australia Ltd v Scarcella & Ors [1998] 44 NSWLR 349 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; [2001] NSWCA 187 Butt v M'Donald (1896) 7 QLJ 68 CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193 Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 Hurley v McDonalds Australia Limited (2000) ATPR 41-741 CASES CITED : Malas (Hamzeh) & Sons v. British Imex Industries Ltd. (1958) 2 Q.B. 127 Mannai Investment Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] AC 749 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; 203 CLR 579 at 602 Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596 St George Bank Limited v Salzberger [2001] NSWCA 67 Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443

PARTIES : Reliance Developments (NSW) Pty Limited - Plaintiff Lumley General Insurance Limited - Defendant

A Fernon - Plaintiff COUNSEL : A P Lo Surdo - Defendant J Rowe - Cross-defendant

Low Doherty & Stratford - Plaintiff SOLICITORS : Turkslegal - Defendant Sid Hawach & Co - Cross-defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5750/2006 Reliance Developments (NSW) Pty Limited v Lumley General Insurance Limited JUDGMENT 1 HIS HONOUR: The plaintiff Reliance sues to recover $160,000, the Guaranteed Amount in a Shield Deposit Bond dated 22 June 2006 signed and issued on 22 June 2006 on behalf of the defendant Lumley by its agent Shield Underwriting Agencies Pty Ltd. On 4 July 2006 Reliance as vendor entered into a written contract with Mrs Renate Ulrike McKenzie as purchaser for sale of property at Reliance Drive Tuggerah New South Wales for $1,600,000 with a deposit of $160,000. By an arrangement made before exchange of contracts the purchaser was to provide a Deposit Bond for $160,000 instead of the deposit. The purchaser applied to Shield for the issue of the Bond, conducted all communications leading up to the issue of the Bond and paid the premium; Reliance did not apply for the Bond, had no negotiations or dealings with Lumley or its agent and made no bargain with Lumley. The purchaser's solicitor sent the Bond to Reliance's solicitors before exchange of contracts. The binding effect of the Bond on Lumley for the benefit of Reliance arises from its character as a bond, that is to say, as a Deed, and does not arise from any agreement for consideration made between these parties. 2 The Bond appears on two sides of a single sheet of paper. One side is the Bond Schedule and it contains particulars special to this transaction. The schedule gives the number of the Bond and says: "Period of indemnity: from: 22/06/2006 to: 22/09/2006 4.00 pm (local time in the State in which the property is located)"

The schedule then gives the name and address of the vendor, the name of the purchaser and some particulars of the property to be purchased including the amount of the deposit and the price, and then says: Guaranteed Amount: $160,000

Then there is a signature on behalf of Shield. 3 On the other side of the sheet there are printed conditions headed "To the Vendor". I set out the parts of these conditions which are now significant. To the Vendor Lumley General Insurance Limited ABN 24 000 036 279 (Lumley) undertakes to the Vendor that it will, subject to and in accordance with the terms and conditions of this Deposit Bond, pay to or at the direction of the Vendor within 4 business days of demand any sum demanded up to the Guaranteed Amount. Lumley has no liability whatsoever under this Deposit Bond unless and until a demand by the Vendor is made strictly in accordance with the terms of this Deposit Bond. Notice of demand The Vendor's demand must be in writing, must be served on Lumley at the address specified below and must be accompanied by: · a copy of a notice of termination or rescission of the Contract for Sale served by the Vendor on the Purchaser entitling the Vendor to recover the Deposit in accordance with the terms and conditions of the Contract for Sale; · a statement in writing by the Vendor that the Vendor has not been paid the Deposit by the Purchaser in accordance with the Contract for Sale; and · the original of this Deposit Bond. Payments will be made to the Vendor without reference to the Purchaser and notwithstanding any notice given by the Purchaser not to pay. Term of Deposit Bond This Deposit Bond commences on the Date of Issue and continues until expiry, which will be on the first to occur of: · completion of the Contract for Sale being effected; · the Contract for Sale being terminated or rescinded resulting in the Purchaser being entitled to a refund of the Deposit; · Lumley paying the whole of the Guaranteed Amount or such part as the Vendor may require; and the Expiry Date specified above. Lumley's liability under this Deposit Bond automatically and absolutely ceases on its expiry except in respect of a demand made by the Vendor in accordance wit this Deposit Bond and received prior to its expiry. No demand may be made after the expiry of this Deposit Bond. . . . Address for service for Lumley General Insurance Limited: Address: P.O. Box 552 Hurstville NSW 1481 Fax: +61 2 9580 5922 4 Nowhere else in the Bond is there any reference to an address or location for Lumley, or for its agent. Nowhere else in the document is there any reference to communications by fax, or to any class of documents which may be sent by fax; there is no other reference to telephones, or telephone numbers or to faxes at all, and the reader is left to understand by inference why the fax number is given. 5 The passages I have omitted relate to Assignment, Choice of Law and Interpretation and do not have any bearing on the issues in this case. 6 The Contract for Sale of Land was exchanged on 4 July 2006 after earlier negotiations over some months. It was agreed that settlement would take place on Tuesday 25 July 2006, but it did not, and Reliance gave the purchaser Notice To Complete dated 3 August 2006 and Notice of Termination of Contract dated 12 September 2006. 7 On Friday 15 September 2006 Reliance's solicitors in Watt Street, Newcastle wrote a letter to Lumley: this appears to have been the first direct communication between the parties. As its heading shows, the letter was sent by post and facsimile. The original letter with enclosures was posted by Prepaid Ordinary Post to the post office box referred to in the Bond. A copy of the letter was also sent by facsimile on 15 September 2006. These were transmitted with the fax copy of the letter: A copy of the Notice of Termination dated 12 September 2006, A copy of a statement dated of September 2006 by which Reliance stated that the deposit had not been paid, and A copy of the Bond Schedule. (No copy of the reverse side of the Bond with the printed conditions was transmitted by fax.) These were sent by fax, dispatched and received over a short period from 4:45 p.m. to 4:47 p.m. on Friday 15 September. 8 The letter was headed with references to the transaction including the number of the Bond. The letter said: We enclose by way of service the following 1. A copy of the Notice of Termination of Contract for Sale served by the Vendor on the Purchaser dated 12 September 2006; 2. Statement in writing by the Vendor dated 12 September 2006; and 3. The original Shield Deposit Bond. We hereby serve Notice Of Demand on behalf of the Vendor for release of the Guaranteed Amount of $160,000. 9 When the Bond was issued on 22 June 2006 Shield's offices were at Hurstville New South Wales. By 15 September Shield had moved its office, or in any event the office where business relating to bonds like this was managed, to North Sydney. Shield had arrangements for the Post Office to forward mail coming to its Hurstville post office box to its North Sydney post office box; and this caused delay, in the order of one day in delivery. It had also arranged for fax messages to the telephone number quoted in the Bond to be redirected by the telephone system to another telephone number and a fax machine in its office in North Sydney; so the fax message was received at that number, and not at the telephone number to which Reliance's solicitors had directed it. 10 The fax message and the documents transmitted with it came to the knowledge of Mr Ruppas in the North Sydney office on Friday 15 September 2006. Mr Ruppas was then the General Manager of Shield. He read the letter, but he did not examine the other documents with close attention. The only significant action which he took was to arrange for the file relating to the Bond to be obtained from a filing cabinet or out of storage. He did not propose to take and did not take any other significant action until he received the original letter. He received the original letter on the following Thursday 21 September 2006. As it was addressed to the post office box at Hurstville it must in some way have been redirected from Hurstville to North Sydney by the post office, or collected by an officer of Shield who sometimes cleared the post office box at Hurstville. There is no evidence about the ordinary course of post but I infer that in the ordinary course the letter, posted in Newcastle on Friday 15 September, probably arrived at the post office box at Hurstville on or about Tuesday 19 September or Wednesday 20 September. 11 Mr Ruppas' evidence was to the effect that when he saw the fax copy of the letter and the material transmitted with it on 15 September he did not examine them closely and did not advert to the nature of the copy Notice of Termination which it included, or to the implications of that document. It was also his evidence that the original letter of 15 September came to his notice on Thursday 21 September 2006, the date shown by the receipt stamped on the envelope which contained it. I accept his evidence on these subjects. Enclosed with the original letter was a copy of the Notice of Termination, a copy of which had been transmitted with the fax message, the signed original of the statement on behalf of Reliance that the deposit had not been paid, and the original Bond. Mr Ruppas closely examined these documents and adverted for the first time to what the Notice of Termination said. 12 The document was a copy of a Notice of Termination dated 12 September 2006 directed by Reliance to McKenzie Gourmet Foods Pty Ltd and it related to termination of a lease; it said: "… The Lease is terminated effective as at 12 September 2006." This was not the document which Reliance's solicitors had intended to enclose with the fax message and the letter. They had intended to enclose a document headed "Notice of Termination of Contract" also dated 12 September 2006 which they on behalf of Reliance had sent to Mrs McKenzie and to her solicitors on 12 September 2006, terminating the Contract for Sale of Land on the ground of default in completion. The letter had been prepared and the enclosures had been collated by Ms Dobinson, a solicitor employed by the plaintiff's solicitors, and seen and signed by Mr Doyle, a principal of the firm; but unfortunately neither had noticed that the wrong Notice of Termination had been copied and included. 13 When Mr Ruppas gave considered attention to the correspondence and the claim on 21 September he soon saw that the Notice of Termination was not the kind of Notice of Termination or rescission which gives rise to liability to pay the Guaranteed Amount. He wrote a letter to Reliance's solicitors and sent it by ordinary prepaid post on 21 September 2006. In this letter he acknowledged receipt of their letter (but gave the wrong date for it), referred to and set out the passage on the reverse of the Bond relating to notice of demand and said: The documents comprising the "Notice of Demand" served on us are deficient. The Notice of Termination supplied refers to a Lease between the Landlord, Reliance Developments (NSW) Pty Ltd, and the lessee, McKenzie Gourmet Foods Pty Ltd, not the Termination of the Contract of Sale. Unless and until the conditions on the reverse of the deposit bond effecting a valid claim have been met we cannot accept your letter of demand as a valid claim. 14 Ms Dobinson received this letter on Monday 25 September 2006 and then became aware, for the first time, that the incorrect Notice of Termination had been sent earlier. She then wrote and Reliance's solicitors sent a letter dated 25 September 2006, which Shield received on Wednesday 27 September 2006, enclosing a copy of the correct Notice of Termination. Mr Ruppas then wrote a letter dated Friday 29 September 2006 by which he denied that Lumley was liable to make a payment. As well as referring to some terms of the Deposit Bond he said: … the attached Notice of Termination … now completes the documents required to lodge a claim … Unfortunately the Notice of Termination was received after the expiry date of the Deposit Bond, namely 22nd September 2006 therefore your client clearly has not effected service on Lumley General Insurance as per the Terms of the Deposit Bond.

… Lumley's liability under this Deposit Bond automatically and absolutely ceased on the Deposit Bond's expiry (refer to "Term of the Deposit Bond" noted above) and therefore we deny Liability under this Deposit Bonds. 15 There was some further correspondence which did not produce agreement and these proceedings were commenced on 9 November 2006. 16 The outcome in which Mr Ruppas on behalf of Lumley denied liability to pay the Guaranteed Amount was plainly produced by mistake; as the facts actually were, Reliance was entitled to claim under the Bond, subject to its provisions about how such a claim had to be made. There really had been an effective Notice of Termination of the Contract of Sale of Land on 12 September. However the relevant facts were known to Mr Ruppas on 21 September (and for that matter at 4.00 p.m. on 22 September) only through what Reliance's solicitors had told him in their letter and enclosures; the letter referred to the Notice of Termination as a notice to the purchaser of termination of the Contract of Sale of Land, the document enclosed was plainly a notice to someone other than the purchaser of termination of a lease, not of a sale of land; either the Notice of Termination had been wrongfully described in the letter, or the wrong Notice of Termination had been included. Mr Ruppas did not know which of these mishaps had happened. On the documents which had been sent to him, he thought it was plain that the conditions for Lumley to be liable to pay out the guaranteed amount had not been fulfilled, and he denied liability for that reason. 17 Having regard to the terms of the Bond, Lumley and Mr Ruppas were not under any contractual obligation to communicate with the purchaser or to take any notice of what the purchaser wished to happen when the claim was made. The Bond gives Lumley four business days to make payment when a claim is made; the purpose of this interval is not stated but presumably includes an opportunity to arrange its finances and produce the amount of money required, and also an opportunity to consider and enquire into the circumstances; there is no obligation to do so. Within four business days the purchaser may have settled the purchase or made some other arrangement with the vendor, or may have paid the deposit; or there may have been some other turn of events. 18 At or about the time on 21 September when Mr Ruppas wrote his letter he spoke by telephone to either Mrs McKenzie the purchaser or to her husband; he did not have any notes or any clear recollection of what was said in the conversation, but whatever was said, he did not come to understand that there really had been a Notice of Termination of Contract of Sale as well as the Notice of Termination relating to the lease which had been sent to him. 19 An important background circumstance for understanding the meaning of the Bond and for seeing how it operates in practice is that it is a guarantee bond, Lumley was guarantor of an obligation of another person, and if liability under the guarantee falls on Lumley, Lumley has recourse against the purchaser. Lumley might not have recourse against the purchaser, or could expect to encounter resistance, if it met a purported claim under the Bond although the circumstances did not strictly oblige Lumley to do so. 20 There is no room for an implication that Lumley was obliged to enquire of the purchaser into the merits of the vendor's claim; compare Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443 at 451 (Gibbs J). There is no reason why the contractual obligation which the Bond imposed would be altered or affected by any information or contention made by the purchaser. The Bond entitles Reliance to move from the position where it was entitled to have the deposit paid in cash but relied instead on the Bond to a position where it will actually be paid cash if Reliance is able to make a demand in the way stated and actually does make the demand that way. If demand can be and is made in the way stated the underlying circumstances of the relationship between vendor and purchaser have nothing to do with Lumley and are none of its business; if the conditions in the Bond are fulfilled liability to pay arises, without room for debate. On the irrelevance of the underlying relationship see St George Bank Limited v Salzberger [2001] NSWCA 67 at 14 (Stein JA). In this respect the workings of the Bond resemble the workings of the bank guarantee considered in Wood Hall Ltd v Pipeline Authority; and compare, in the case of a confirmed letter of credit, Malas (Hamzeh) & Sons v British Imex Industries Ltd. (1958) 2 Q.B. 127. 21 The primary position taken by Reliance related to the meaning and effect of the provisions of the Bond about making a demand. Reliance's counsel submitted that it is sufficient for an effectual demand and for entitlement to payment that the notice of demand first referred to ("The Vendor's demand must be in writing …") must be made before 4 p.m. on 22 September 2006, must be served on Lumley at the address specified in the Bond; and that if this is done the exception ("… except in respect of a demand made by the vendor in accordance with this Deposit Bond and received prior to its expiry … ) is satisfied; a demand made after that time is ineffective because of the last sentence under the heading "Term of Deposit Bond" ("No demand may be made after the expiry of this Deposit Bond"); but it is not necessary that the accompanying documents referred to - a copy of the notice of termination, a statement in writing by the vendor and the original Deposit Bond - should be received prior to the expiry of the Bond. 22 Counsel pointed to several anomalies or infelicitudes of expression in the terms of the Bond. It is said that the demand must be served on Lumley at the address specified below, but the only address given is a post office box number; and the only way in which a document could be said to be served at a post office box number is by posting the document by prepaid post to the post office box; the only way in which it could be said that a demand was made by the vendor and received prior to expiry of the Bond would be that the demand should reach the post office box before the time of expiry. To me it seems a slightly anomalous use of language that the post office box should be referred to as an address at which a written demand must be served, and where a demand must be received prior to expiry; a postal article may reach a post office box without any person knowing of that fact at the time when it occurs, or for some time thereafter, according as the post office box is cleared. The mechanism appears rather strange, particularly as the document gives no other location for Lumley or its agent. The Bond refers to "the Date of Issue" and to "The Expiry Date specified above" as if these were defined expressions; but they are not defined in any way, and there is nothing in the text before the paragraph headed "Term of Deposit Bond" mentioning the date of issue or specifying the expiry date. The period of indemnity ends, or expires, at 4 p.m., not simply on a date; that time can be readily understood, but it is a slightly strange use of language to refer to it as "the Expiry Date specified above". 23 These are in my opinion no more than apparent anomalies and have no significance. 24 More significant are some circumstances attending the reference to service and to an address. The reader who reads the paragraph headed "Notice of demand" and scans the document to find out what is "the address specified below" will find only the three lines commencing "Address for service for Lumley General Insurance Limited": the following line begins "Address" and specifies the post office box number; and the word "Address" is in bold type. The next following line gives a fax telephone number; and the word "Fax" is in bold type. A completely literal-minded reader will see that the address specified is the post office box number and that the fax number is given as a different subject to the address. However this completely literal reading is not the only way in which this passage might strike a reasonable reader. The presence of a fax number under the heading "Address for Service for Lumley General Insurance Ltd" is open to the reading that service may be effected by sending messages to the fax number. 25 This reading is not an easy one. It is anomalous to speak or to think of a fax telephone number as a specified address at which a demand must be served, and even more anomalous when one reads that a statement in writing and an original Bond must accompany the demand. A fax telephone number is not a location at which an event can happen: it is not an address where documents can be served, and original documents cannot be transmitted by fax. Apparent anomalies like these can sometimes be passed by, employing Lord Hoffmann's resort to known background against which the utterance is made: Mannai Investment Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] AC 749 at 775. In this document which is not part of an exchange of communications and has no demotic character, the meaning of the words used and their syntactical arrangement have the more prominent claim when I approach the meaning which the words express. A post office box is an address, with no more than a modest stretch of an ordinary understanding of serving a demand and accompanying documents at a specified address: a fax telephone number is not within an ordinary understanding of the words used by any stretch, and there is no background in which words are used as if it is. 26 It might be thought that the difficulty of knowing whether service of demands by sending messages to the fax number is authorised is not important in the present case, because although Reliance's solicitor sent a fax message with copies of documents on 15 September and it was received on 15 September, they also posted the documents which (but for one mistake) they wished to serve on Lumley also on 15 September, and the documents were received through the post office box and came into the hands of Mr Ruppas on 21 September; Reliance's problem is not that it chose to serve the documents by sending a fax message. 27 However the plaintiff's counsel contended that the correct construction is that delivery of the demand either by sending it to the post office box or by sending a fax message is authorised, and that this has implications for understanding what the terms of the Bond require relating to service of demands and delivery of other documents. Obviously enough the original of the Deposit Bond cannot accompany the demand in the sense of being enclosed with it if the demand is served by a fax message. According to counsel's argument, this consideration aids the view that strictness with respect to the time at which the demand may be made relates only to the demand in writing, and does not relate to the accompanying documents. The contemplation that there could be a demand by fax message, and that the original of the Deposit Bond could be delivered in some other way, was said to show or to contribute to a conclusion that delivery of the accompanying documents before the expiry of the Deposit Bond was not essential for imposing on Lumley liability to pay the guaranteed amount. 28 The plaintiff's counsel made some observations on what was referred to by the words "accompanied by". As I understood him counsel contended that it is not essential that the three documents which I call accompanying documents should actually be enclosed in or form part of the same communication as the demand in writing. I found this part of the argument difficult; my understanding was that it was contended that it is sufficient if the accompanying documents reach Lumley in some way in association with making the demand, but that it was not essential that they all be enclosed with the demand in writing so as all to be communicated or transmitted on the one occasion or as the one event. 29 The object of the argument if it is to be successful must be to establish at least three things. The first is that the demand in writing, and the accompanying documents or in any event the notice of termination may within the requirements of the Bond be transmitted through the post in different postings, in different communications, so that the correct notice of termination, which Reliance's solicitors posted on Monday 25 September 2006 should be understood to have accompanied the demand in writing. The second is that the omission of the correct notice of termination and its delivery some days after 22 September does not make the demand any the less a demand falling within the exception ("… except in respect of a demand made by the Vendor in accordance with his Deposit Bond and received prior to its expiry"). The third is that the barrier presented by the sentence "No demand may be made after the expiry of this Deposit Bond" is not encountered if one or more of the accompanying documents is transmitted by post after 22 September. 30 In the present case it is plain that Lumley is the profferor for the purpose of contra proferentem reasoning in the construction of the Bond. Contra proferentem is reasoning of last resort in the construction of documents: see McCann v Switzerland Insurance Australia Ltd [2000] HCA 65, 203 CLR 579 at 602 [74] subpar 4 (Kirby J) referring to insurance policies but more generally applicable. It is only applicable if the terms of the document yield an ambiguity which cannot be resolved in any other way; ambiguity must relate to more than one meaning all of which are fairly open; see Rava v Logan Wines Pty Ltd [2007] NSWCA 62 (Campbell JA). 31 Development of argument involved reference to principles relating to construction contra proferentem which was said to require the conclusion that the reference to the address for service was ambiguous, that the construction that service of the demand by fax transmission was as reasonably open as the construction that only service by posting to the post office box; and that hence contra proferentem reasoning required the conclusion that service of the demand by fax transmission was authorised. I had the benefit of references to case law on contra proferentem reasoning. It is of course plain that Lumley is the proferror; statements sometimes encountered in authorities (for example Coghlan v S H Lock) to the effect that ambiguities are resolved in favour of the surety are made on the assumption that the surety is not the proferror but has been persuaded to adhere to a document prepared by the party benefited by the guarantee. 32 Counsel's submissions also endeavoured, by tracing the use in the Bond of the word "demand" and related concepts, to show that "demand" is used in a narrow sense, and that the references in the last two sentences under "Term of Deposit Bond" to "demand" used that word in a narrow sense referring back only to the opening words "The Vendor's demand must be in writing …" and not to some wider concept of a demand. The contention was to the effect that the accompanying documents and the provision requiring them are not part of the concept of a demand used in the last two sentences under the heading "Term of Deposit Bond". 33 A consideration which I regard as quite important, and as supportive of Reliance's position in so far as consideration of the purposes of the provisions in the Bond is important for construction, is that it is difficult to see that some sufficient purpose is served by, or that the protection of Lumley's interest requires great strictness with respect to delivery to Lumley of the accompanying documents before the expiry of the Bond period. The view is available that Lumley's interest would be sufficiently protected if it was told of the demand during the period of indemnity, provided that the underlying facts justifying the demand actually existed. If the underlying facts exist in reality, it is difficult to see that Lumley's interest requires that there be testimony of those facts in particular stated ways, by three accompanying documents, that the testimony all be delivered within the period of indemnity, and in particular, must accompany the demand. The strictness seems excessive to what is needed to meet the purpose. If the facts justifying a claim actually exist and Lumley has been told about them, it could be thought that Lumley's interests do not require that the material testing the facts come in within the period of indemnity, and that Lumley's interests would not be injured if they come in later, on the assumption of course that the facts which they attest actually exist. 34 If there is to be resort to consideration of purposes in order to determine the meaning of the Bond, and also if it is right to make the last resort to contra proferentem reasoning with respect to the address for service, more than one construction of the document must be reasonably available. 35 Notwithstanding considerations I have mentioned earlier, which might be thought to show that complete strictness in compliance goes beyond a purpose imputable to Lumley of protecting its interest by ascertaining within the indemnity period what claims it has to meet, there are a number of indications in the language of the Bond that complete strictness is required. Expressions which support this view are:

First, the words "subject to and in accordance with the terms and conditions of this Deposit Bond"

Seondly "Lumley has no liability whatsoever under this Deposit Bond unless and until a demand by the vendor is made strictly in accordance with the terms of this Deposit Bond." (I have added emphasis).

Thirdly, the provision that the demand "must be accompanied by" the accompanying documents.

Fourthly, the sentence "Lumley's liability under this Deposit Bond automatically and absolutely cases on its expiry except in respect of a demand made by the vendor in accordance with this Deposit Bond and received prior to its expiry." Again I have added emphasis.

Fifthly, the final sentence "No demand may be made after the expiry of this Deposit Bond". 36 In my opinion the meaning of the words in the Bond is intractably adverse to Reliance's position. 37 Consideration of what is a demand made by the Vendor strictly in accordance with the terms of the Deposit Bond shows that these words require compliance with what was earlier said about service, and also about the demand being accompanied by other documents; unless these are met, the exception is not satisfied because the demand is not made in accordance with the Deposit Bond. 38 With respect to the manner of service, while the reference to the fax number might cause some confusion, the confusion is readily resolved by consideration of all the provisions of the Bond together. The words under the heading "Notice of Demand" in my opinion intractably mean that the accompanying documents must be served with, as part of the same communication as the demand in writing. If the accompanying documents reached Lumley in a different communication to the demand in writing, and reached Lumley after the expiry of the Deposit Bond, it would in my opinion be altogether inconsistent with the provisions of the Bond to conclude that they accompanied the demand in writing. The time when the demand in writing must be served appears incontrovertibly, and in my opinion it is not a reasonably available, or a possible construction, that a document which reached Lumley's post office box after that expiry accompanied the demand in writing which was made before that expiry. 39 Notwithstanding the confusion which the reference to the fax number might create about the manner of service at the address specified, any such confusion is readily resolved, and there is no ambiguity in my opinion about the manner of service at the address specified which is authorised. The demand in writing must be accompanied by the original of the Deposit Bond; it is not a physical possibility to transmit the original Deposit Bond by fax transmission. Indeed the same should be said of a statement in writing by the vendor that the vendor has not been paid the deposit; the only thing that a fax machine could transmit is a copy of a statement in writing, and when service of a copy is authorised the Bond says so when it refers to a copy of the notice of termination. The notice of demand must be accompanied by original documents, that cannot happen if the notice is transmitted by fax transmission, and any possible confusion arising from the reference to the fax transmission is readily, completely and adversely resolved. 40 There are conceivable developments of what I have said on different facts: if documents which ought to be accompanying documents are transmitted by post in a different posting to the demand in writing and reach the post office box later than the demand in writing but before expiry; or for that matter, earlier than the demand in writing, it could be said that everything that should happen has happened in substance. These are not events that happened, they would not be good test of my reasoning, and I need not pursue them to a conclusion. 41 In my opinion the words of the Bond intractably require strict formal compliance. Formality is everything; if the formalities are met, Lumley has to pay. Lumley is not to refer to the purchaser and Lumley has to ignore any notice given by the purchaser; such as a notice contending that delivery of notice of termination was unjustified, or contending that the contract does not entitle the vendor to recover the deposit, or contending that the purchaser has actually paid the deposit: deaf ears. 42 Rigid formality and unquestioning payment on compliance are the heart and soul of the Bond and central to its commercial function. Performance bonds, guarantee bonds and other documents with similar characteristics and commercial function are encountered from time to time in case law, and they are enforced strictly. This is one of them. 43 The strict and mechanical nature of the working of the Bond, which in my opinion its terms require, fulfils the purposes for which the Bond and documents of similar character referred to in Wood Hall exist; if the stated conditions exist, the guarantor must pay the money, as the Bond takes the place of money which, under different arrangements, the recipient would already have under control. The merits of the relationship between vendor and purchaser and the substantial justice of the whole controversy are not relevant; they are beside the point of the guarantor's obligation which exists if the stated conditions are fulfilled, and does not exist if they are not fulfilled. Strictness with respect to the conditions is a long established aspect of the approach of the court to guarantees. See Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 at 92F (P.C.). 44 Reliance's claim was presented on several alternative bases in which it was said that Mr Ruppas and through him Lumley acted in a way which was in breach of a contractual obligation of good faith, or was unconscionable or otherwise so unsatisfactory as be a ground for relief, in that he did not state to Reliance's solicitors the grounds on which he rejected their claim at a time or in circumstances in which Reliance's solicitors could have overcome the difficulty by delivering a copy of the correct Notice of Termination before expiry of the term of the Bond at 4 p.m. on 22 September. 45 A number of observations should be made when consideration of these bases for the claim opens. 46 One is that it is clear on the evidence and I find that Mr Ruppas did not act in a way which he intended would prevent or obstruct the delivery of a conforming demand. I am satisfied on the basis of his evidence that when he received the fax message and accompanying documents on 15 April he did not examine them closely, did not advert to any difficulty produced by the terms of those documents, made arrangements to get out the file but deferred any consideration until he received the written notice through the post. I am also satisfied that when Mr Ruppas received the written notice and enclosures on 21 September, considered them and replied by letter on the same day, he did not intentionally choose a course of action which would prevent or impede the delivery of a conforming notice by 4 p.m. on the following day. The course he took, writing and posting a letter from North Sydney on 21 September made a very unlikely (not completely impossible) that Reliance's solicitors in Newcastle would receive the letter and be prompted to take correcting action by 4 p.m. on 22 September. If it had been Mr Ruppas' object to impede correcting action his obvious best course was not to write the letter at all, but to put off any action and sit out the four days available, or never answer at all. It certainly was not his object in writing the letter to offer Reliance and its solicitors an opportunity to make a further demand. The Bond did not oblige him to make any statement of reasons for not acting in conformity with a demand; explaining his course by writing a letter was no more than ordinary business prudence and courtesy, and was not a response to any actual or perceived duty. It is true that he could have considered the documents sent to him by fax and observed the difficulty earlier, and he could have communicated with Reliance's solicitors by telephone or some other rapid method when he did see what he considered a difficulty on 21 September. There is no reason to find and I am not prepared to find that he chose writing a letter rather than some more rapid means of communication with the object of blocking any effective response. For this reason it cannot be concluded that he acted with bad faith, or did not act in good faith. 47 It should also be observed that in this part of Reliance's case it is assumed that if Reliance's solicitors had adverted to the difficulty it would have been open to them to make another effective demand by 4 p.m. on 22 September. They could not make another demand which complied with the requirements of the Bond because they no longer had the original Bond, and it could not accompany a further demand. An alternative view may be that it was open to them to make up for the absence of the correct Notice of Termination by delivering a copy of the correct Notice of Termination by 4 p.m. on 22 September; in this alternative view, the requirement for the document to accompany the demand would be satisfied. I do not think that this is correct. A further assumption is that if they had been told on or before 21 September what Mr Ruppas perceived to be the difficulty, the solicitors would have taken effective action to overcome the perceived difficulty, and would have done so by 4 p.m. on 22 September. It is quite uncertain whether they would have been able to deliver a fresh demand, or a copy of Notice of Termination, to the post office box at Hurstville within the time available. 48 There are some other considerations which affect what Mr Ruppas should have done, and whether not acting promptly - indeed immediately - to point out the perceived difficulty should be considered unconscionable, bad faith or other unfair conduct on his part. The relationship between the parties consisted entirely of Lumley's being under the burden of the obligations in the Bond and Reliance having the benefit of the obligations. There had been no bargain between them, and no consideration had passed from Reliance. There was no continuing relationship or course of dealing between them. There were no circumstances in which Lumley was responsible for Reliance's interests; nor did Reliance rely on Lumley to protect its interest. The relationship was commercial and had no other character; each side was involved for its own advantage, and not otherwise. The Bond required no co-operative action of them and there was no project or endeavour in which they were to work together to produce some desired outcome. Nothing in the circumstances made one the custodian of the interests of the other. 49 Reliance's counsel contended that the Bond contained and that Lumley had breached an implied duty to co-operate in the performance of contractual obligations. The circumstances in which there may be such an implied duty are authoritatively stated in Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596 by Mason J at 607-608, in a judgment which all other Justices concurred. Mason J approved of an observation, of considerable fame, by Griffiths CJ in Butt v M'Donald (1896) 7 QLJ 68 at 70-71, but in my opinion did not express his approval in an unqualified way. The whole passage is: Was the respondent's rejection of the appellant's offer to take a lease of the vacant space in the building a breach of contract? This is the next question to be considered. Clause 1 (d), which required the approval of the respondent purchaser to leases after the date of execution of the contract, provided that its approval should not be capriciously or arbitrarily withheld. This sub-clause dealt with the grant of leases before the respondent became the owner, when the appellant was granting leases of parts of the building, subject to the approval of the respondent. But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in Mackay v Dick (1881) 6 App. Cas. 251, at p.263: "as a general rule ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect." It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract. As Griffith CJ said in Butt v M'Donald (1896) 7 Q.L.J. 68, at pp. 70-71: "It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract." It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.

50 The sentence quoted from Butt v M'Donald has had remarkable vitality and influence, considering that it was a highly general statement in an ex tempore judgment, in general terms which went far beyond the need to the occasion indicated by the following sentence at 7 Q.L.J. 71: "In the case of a contract of sale, that rule is implied by implying a promise or warranty that the purchaser should have a title to the property." Lord Blackburn's statement in Mackay v Dick, also quoted by Mason J, was more cautiously expressed and more readily applicable as a governing principle, applicable to the achievement of an agreed result "which cannot effectually be done unless both concur in doing it". As the final paragraph of the passage cited from Secured Income Real Estate shows, the implication is less readily made when the acts in question are not essential to the performance of the other party's obligations and are not fundamental to the contract. There are acts of cooperation which are necessary if a contractual result is to be achieved, and there are also acts of cooperation which would enhance the outcome for the other party, which it is left to the first party to decide whether or not he will do, with a view to his own interest. In the performance of contractual obligations under the Bond the only thing that Lumley is required to do is to make a payment in the stated circumstances. No acts, co-operative or otherwise are required of Lumley with respect to matters to which counsel's illustrations related, such as clearing the box, reading and considering claims and coming to a decision. One of counsel's illustrations was apposite; there is an implied contractual obligation to maintain the post office box. Otherwise there is nothing for Lumley to do, and in particular there is nothing for Lumley to do in order to make it possible for Reliance to perform any fundamental obligation under the contract, or to perform any obligation at all. Making a conforming demand is not a contractual obligation of Reliance; it is something which Reliance can do which if done will fulfil the conditions for entitlement to payment. Participation by Lumley in doing those things has no part in fulfilling the conditions and creating the entitlement: with the sole exception of maintaining the post office box. The implication referred to in Butt v M'Donald cannot be spelt out into a basis for imposing an obligation on Lumley to consider a demand, come to a conclusion on it and give a ruling on the demand to Reliance; still less to give a ruling in sufficient time to enable Reliance to alter its course. 51 Counsel also claimed entitlement to rely on an obligation of good faith in the performance of contracts. It is established in the law of New South Wales that the duty of good faith in the performance of contractual obligation may be implied in the contract; but in terms which recognize that there is no general doctrine that such a duty will be implied in all cases. This was authoritatively established in Alcatel Australia Ltd v Scarcella & Ors [1998] 44 NSWLR 349 by Sheller JA in the leading judgment, reviewing authority relating to implied terms extensively from page 363B to the conclusion at 369B "The decisions in Renard Constructions and Hughes Brothers mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract." As this sentence shows, the implication is not necessarily made. A further review in the judgment of the Court of Appeal (Sheller, Beazley and Stein JJA) in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at paras 141-168 gives an extensive review of then Australian case law and confirms that the implication is not a matter of course and takes place within the framework of the notion of necessity of the implication. See too CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193. 52 Having regard to the nature and provisions of the Bond, to which I referred earlier, and the limitation of the obligation it imposes on Lumley to making a payment in the stated circumstances, I do not think that there is room for implication of a duty of good faith in performing obligations, and there are next to no rights to exercise. Further there is no basis for concluding that Mr Ruppas acted otherwise than in good faith; he did not choose his course with any purpose of impeding or deflecting Reliance's claim, or with any purpose ulterior to informing Reliance why he was not prepared to pay. 53 The plaintiff's counsel also contended that the plaintiff was entitled to rely on breach of s 51AA of the Trade Practices Act 1974 (Cth). If the other requirements of the provision were shown to have been fulfilled it has not been shown, in my opinion, for reasons which already appear, that Mr Ruppas' conduct was unconscionable "within the meaning of the unwritten law" which in this context refers to equitable principles, to the relief available under which s 51AA gives additional remedies. Counsel also relied on s 51AC, which uses a concept of unconscionability not exactly according with equitable principles, but turning on a decision in accordance with the terms of s 51AC, in which a pejorative moral judgment is made upon the defendant's conduct; see Hurley v McDonalds Australia Limited (2000) ATPR 41-741 at 40585 where the Full Court of the Federal Court of Australia expressed views on what is meant by "Unconscionable" in s 51AC, and some related sections; see particularly paragraph 22: [22] For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable , must be demonstrated - Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever "unconscionable" means in s51AB and s51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience , or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term "unconscionable" import a pejorative moral judgment - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-284 and 298. 54 Nothing Mr Ruppas did comes within this exposition. 55 Lumley filed two Cross-claims, one against Mrs McKenzie the purchaser, and one against Mrs McKenzie and a finance company. Mrs McKenzie's counsel informed me that she submitted to the Court's decision. I was told that the finance company was in liquidation: in any event it took no part in the hearing. In the circumstances the Cross-claims should be dismissed. 56 My Order is:

(1) Give judgment for the defendant with costs. (2) Dismiss the Cross-claims. **********

14/03/2008 - Paragraph [26] delete April substitute September - four corrections.Paragraph [30] Line 1 delete Reliance substitute Lumley. - Paragraph(s) 26 and 30

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Trade Practices Act 1974(Cth)

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