Sugar Australia Limited v Conneq

Judgment (ex tempore) - on notices of motion 1HIS HONOUR: The plaintiff, as principal, and the defendant, as contractor, entered into a design and construct contract whereby the defendant undertook to design and construct an upgrade (for want of a better word) of a sugar refinery owned by the plaintiff. The refinery is situated in Yarraville in the State of Victoria. 2The parties are in dispute as to many things. Of specific relevance today, the parties are in dispute as to whether the defendant has a right to terminate the contract for what it says is the plaintiff's failure to rectify a substantial breach, of which alleged breach the defendant gave written "show cause" notice to the plaintiff. 3The plaintiff seeks interlocutory relief, to restrain the defendant from terminating (or purporting to terminate) the contract pending the final hearing and resolution of these proceedings. The application for interlocutory relief was made to protect what was said to be the plaintiff's accrued right to receive performance of the defendant's contractual obligation to deliver certain documents to the plaintiff in relation to the works. 4The defendant moves alternatively for an order that the proceedings be dismissed; an order that they be stayed; or an order that they be cross-vested to the Supreme Court of Victoria. 5The defendant's "show cause" notice was given on 31 May 2011. It alleged that the plaintiff had committed substantial breaches of the contract. One breach alleged was of clause 20, under which the plaintiff was required to have, and to keep in place, a principal's representative who would fulfil his roles and functions under the contract reasonably and in good faith. The particulars of that breach related to a direction given by the principal's representative (a Mr Karantzis) to the defendant on 17 May 2011, and another direction given by Mr Karantzis to the defendant on 20 May 2011. Reliance was also placed on what was said to be the wrongful rejection by Mr Karantzis of variation claims submitted by the defendant, and the way in which he dealt with those variations. 6Other grounds of alleged substantial breach related to the plaintiff's interference in the defendant's intended testing activities to be conducted from a switch room known as Switch Room 5, and the plaintiff's act in excluding the defendant from that switch room and thereby, it is said, breaching the plaintiff's obligation to give the defendant access to the site. 7This morning, the plaintiff gave the defendant letters whereby, without admitting that it was required to do so, it withdrew the two directions with immediate effect and stated that the defendant would be allowed immediate access to Switch Room 5. One of the letters also stated that the plaintiff would comply with its obligations under clause 20 (relating to the position of the principal's representative), and that it remained willing and able to perform the contract. 8The defendant's position, in relation to the claim for interlocutory relief, is that it has an accrued right to terminate (or, more accurately, will have an accrued right to terminate tomorrow, when the relevant contractual provisions have run their course, and on the assumption that the plaintiff has not by then remedied the breaches of which complaint was made). 9Nonetheless, the defendant offered, without admissions, undertakings to the Court that, if it validly terminated the contract, it would not contend that the effect of termination was to preclude the Court from making an order requiring the defendant to deliver the plaintiff any document that the defendant was required to deliver up to 10 June 2011 (when notice was given by the plaintiff requiring delivery) and that was in existence at the date of that notice. Further, the defendant undertook that it would not destroy or otherwise make unavailable any such document. 10At the heart of the plaintiff's submissions in support of the application for interlocutory relief lay the proposition that, if the contract were validly terminated by the defendant, the Court would not order specific performance of any accrued right to receive performance other than a right to demand payment of sums fixed by the contract which had accrued up to that date. Reliance was placed on Carter, Peden and Tolhurst, Contract Law in Australia (5th ed, 2007) at 743 [32-05]. 11I do not propose to recite the parties' various submissions in any detail. They were outlined in writing and the written submissions will remain with the file. The oral submissions have been taken down, and can be transcribed if necessary. In essence, the defendant submitted that the position stated by the plaintiff in its written outline was correct and that accordingly, even if otherwise specific performance might be ordered of some but not all obligations under a building contract, the plaintiff could not as a matter of law get specific performance of any accrued right to receive documents. Alternatively, the defendant submitted, the plaintiff would be debarred from obtaining equitable relief in the hypothetical circumstances under consideration because of its unclean hands. 12Under the contract, as I have said, the defendant as contractor can give the plaintiff as principal written notice to show cause in the event of substantial breach. If the plaintiff does not show cause by the date and time limited in the notice, the plaintiff has an express right to suspend the whole or part of the works under the contract. Further, if the suspension continues and the plaintiff does not within a period of 28 days remedy the breach or (if the breach cannot be remedied) make other arrangements to the reasonable satisfaction of the defendant, the defendant can terminate the contract. 13I proceed on the basis, (which I assume, but do not find) that the plaintiff has not availed itself of the opportunity to show cause, or rectify the breach, or to make other arrangements to that the reasonable satisfaction of the defendant, and that it is unlikely to do so before the 28 day period expires tomorrow. Whether or not that assumed basis is correct, it is a convenient starting point for the analysis. 14If the 28 day period expires without rectification or other arrangements having been made, the defendant has a contractual right to terminate. If it terminates, the contract is brought to an end in so far as further performance is concerned, and the defendant's obligations further to perform are discharged. Thus, if the termination is valid, the contract comes to an end. If, however, the termination is not valid, the plaintiff is given a choice. It may, nonetheless, treat the termination as a repudiation, accept that repudiation and thereby discharge itself from further performance. It will be left to its right in damages against the defendant. Alternatively, the plaintiff may reject the termination and affirm the contract. If it does so, and succeeds in showing that the termination was invalid, the plaintiff will maintain, and can seek to enforce, whatever (if any) right to specific performance it may have. 15There is much to be said for the proposition that, at least as a general rule, valid termination of a contract discharges the parties from further performance, not only of obligations that are unperformed at the date of termination but also of obligations that fell due for performance, but were unperformed, prior to that date. That is the general position stated in Carter, Peden and Tolhurst at the reference I have given. It is also the general position stated in Carter, Carter's Breach of Contract (3 rd ed, 2011), with more detailed analysis, at 600 [12-09] and following. However, it is unnecessary to consider whether that general position applies in the present case or whether, perhaps, one of the possible exceptions could be utilised for the benefit of the plaintiff. That is because Mr Corsaro of Senior Counsel, who appeared with Mr Cook and Mr Cogley of counsel for the plaintiff, accepted that if the plaintiff were correct and termination did not divest accrued rights, then there was no utility in the grant of injunctive relief; and that if the plaintiff were wrong, and termination did divest the plaintiff of accrued rights, then it would not get the order for specific performance that it would seek in any event. If I may say so, that analysis seems to be correct. 16In those circumstances, I do not think that there is any utility in granting interlocutory relief. 17Even if that conclusion were wrong, I have to say that this is a case in which there are very strong considerations that would tell against the grant of interlocutory relief. The first is that the relief is sought in order to enable the plaintiff to achieve specific performance of rights under a building contract. Whilst it is certainly not the case that an order for specific performance cannot be made in respect of a building contract, it is certainly correct to say that, as a general rule, such orders are not made. As Martin CJ put it in Crouch Developments Pty Ltd v D & M (Australia) Pty Ltd [2008] WASC 151 at [21], "[g]enerally 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". Thus, his Honour said at [23], the court would only be justified in granting relief by way of interlocutory injunction to hold the position, "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". In expressing that view, his Honour directed himself by reference to the judgment of Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65] and following, in particular at [72]. 18As is recognised in Meagher, Heydon and Leeming, Meagher, Gummow and Lehane's Equity Doctrines & Remedies (4th ed, 2002) at 666 [20-080], building agreements are, "par excellence, [agreements] the performance of which requires continual supervision". Nonetheless, the authors said, specific performance might be ordered if, among other things, the work was so clearly and particularly defined that the court could sufficiently see what is its exact nature. The authors relied on what Romer LJ had said in Wolverhampton Corporation v Emmons [1901] 1 KB 515 at 524-525. 19It may very well be, as Mr Corsaro submitted, that the focus has moved away from continual supervision by the court and more towards the adequacy of damages as a remedy for any breach. See the majority (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ) in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 46-47. But regardless, the fact remains that, at least as a matter of general application, the courts are unwilling to order specific performance of a building contract and will do so only in extraordinary circumstances. 20Further, what the plaintiff is seeking is not specific performance of the whole of the defendant's obligations under the contract, but of a discrete identified part only of those operations. Quite how this can be done, when the obligations of the parties are interdependent, and where there is an entire consideration although payable by instalments, is something that raises its own difficulties. 21Another consideration that would have told against the grant of interlocutory relief is that the hypothetical circumstance that was said initially to make it necessary, was that the defendant had validly terminated the contract. The termination would only have been valid if the plaintiff had committed a substantial breach, or breaches, of the contract. There would thus be a direct relationship between the plaintiff's own wrongdoing (in committing substantial breach or breaches) and the right sought to be protected (namely the right to receive performance notwithstanding the defendant's exercise of its contractual entitlement consequent upon those breaches). In those circumstances, there would be a very strong inclination to deny interlocutory relief on discretionary grounds. 22Finally, for present purposes, the court cannot but be aware that the contract in question no doubt reflects close and detailed negotiation by the parties. They bargained for the precise contractual regime that is set out in the contractual documents, and assessed the price they were prepared to pay by reference to the benefit of the obligations of which they would receive performance and to the mechanisms both for ensuring performance and for protecting them, in the case of substantial breach, from having to deliver further performance. If a party has validly exercised a contractual right that reflects the contractual outcome of this bargaining process - and I repeat that the governing hypothesis is valid exercise of the right to terminate - then the court should be slow to deprive the party of the consequent protection for which it had bargained, and to require it nonetheless to continue to perform some part of its obligations. 23There were other questions argued, as to the adequacy of damages as a remedy and as to the balance of convenience. It is not necessary to refer to those because, even if I had thought that as a matter of principle a right to interlocutory injunctive relief had been demonstrated, I would have been declined to grant that relief by reference to the discretionary considerations that I have just outlined. 24I turn to the defendant's application. That application was based on clause 42 of the contract, which provided for a staged dispute resolution procedure. If a dispute arose, then one or other of the parties was required to give written notice of it. Once such a notice was given, the parties were required to confer at least once within 14 days to resolve the dispute. If that conference (or those conferences) did not resolve the dispute then the parties were required to confer again, at least once, within a further period of 14 days. If the dispute was not resolved within a further period of 14 days (i.e. within 42 days of service of a notice of dispute) then either party could refer the dispute to litigation. There was the usual saving of what was called "summary relief": a right to institute proceedings to enforce payment under the contract or to seek injunctive or urgent declaratory relief. 25In submissions, Mr Collins of Queen's Counsel, who appeared with Mr Bova of counsel for the defendant, accepted that the purpose of the first leg of the relief sought by his client was to preserve the benefit of the dispute resolution process, and thus that the appropriate relief would be by way of stay rather than by way of summary dismissal. That must be so, in a context where the proceedings were commenced seeking urgent interlocutory injunctive relief. Mr Collins accepted also that if any stay were to be granted, it should be dissolved following any exercise by his client of its alleged contractual right of termination. 26It is clear, again, that the dispute resolution process forms an integral part of the bargain negotiated by the parties. The clause in question (clause 42) does not prevent the parties from having access to the court, even where no urgent relief or payment is sought. It makes them confer, perhaps twice or more, in an attempt to resolve the dispute before it goes to court. The courts these days take the view that the parties should be held to their bargain, and that if necessary the courts' processes should be directed towards ensuring that they do so. Indeed, some of the cases go so far as to suggest that it might be an abuse of process for someone to commence litigation in the face of a clause such as clause 42, where the exception for summary relief does not apply. 27In the present case, it does not appear that any conferences of the kind contemplated by clause 42 have occurred. That may perhaps be because the relationship between the parties appears to have become toxic. (Harking back for a moment to the question of specific performance, if on a final hearing the evidence showed that there was such a toxic relationship, that itself might be a matter that would tell against the grant of specific performance.) Nonetheless, the parties should not be at liberty to dispense themselves from compliance with their bargain simply because their individual representatives have been (if indeed they have been) offensive one to the other. Thus, I think, it is appropriate in principle to stay these proceedings for a period of 42 days to enable the parties, although out of time, to comply with their obligations under clause 42. Equally, if that is to happen, the stay should be dissolved if the defendant gives notice of termination during that 42 day period. 28I turn to the application to send the proceedings by the Supreme Court of Victoria, pursuant to s5(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW). That application is made on the basis that it is in the interests of justice that the proceedings be determined by the Supreme Court of Victoria rather than by this court. The factors relied upon included the following;