Walter Construction Group Ltd v Secretary to the Department of Infrastructure [2000] VSC 232

5. It appears from the affidavit of Richard John Roennfeldt, the director of OMP, sworn 6 April 2000 that on 3 April 1998 OMP issued to various contractors, including the plaintiff, an invitation to tender for the design and construction of the Victorian Archives Centre. The tender of WCG was submitted on 15 May 1998. By letter dated 1 July 1998 OMP advised WCG that it was the successful tenderer and on 15 September 1998 WCG commenced work.

8. On 30 September 1999 WCG wrote claiming that practical completion had been achieved. This was disputed by the superintendent by letter dated 14 October 1999. Meantime, on 11 October 1999, the National Gallery of Victoria entered into occupation of part of the works, about 14,000 M2 of a total building area of 25,000 M2. The question as to whether, even now, the works have been brought to practical completion is unresolved. WCG has adopted the position that, since no instrument of contract was ever executed, no agreement for the performance of the work was ever concluded. It alleges in paragraph 6(1) of its statement of claim that between 14 July 1998 and 30 September 1999 the parties continued to negotiate. OMP for its part admits in its defence that the parties engaged in negotiations with respect to the drafting of the agreement but asserts that a contract was concluded on 3 July 1998.[1] It provides no particulars of this agreement as required by Rule 13.10. It would seem from Mr Roennfeldt's affidavit that this date has been selected because this was the date upon which WCG wrote to OMP in response to OMP's letter of 1 July 1998 that "we confirm our agreement to the following summary documentation as contained in your letter dated 1 July 1998". In paragraph 26 of this affidavit, however, he expresses the contention of OMP on this matter in rather broader terms. It is fair to say that it nowhere appears precisely what it is that OMP contends comprises the contract upon which it relies.

11. Accordingly, there is a serious issue as to the terms, and even the existence of a formal contract. As occasionally happens in the construction industry, the work was put in hand without an executed contract. Counsel for OMP said, with some force, that the contention of WCG that work to a value in excess of $25M would be undertaken without a contract was far-fetched. Indeed, it is regrettable that those responsible for a project of such magnitude failed to procure the execution of a formal instrument of agreement. He pointed out that, notwithstanding this, the parties, including WCG, performed and submitted to the administration of the project work as if the tender form of contract had been executed. One of these acts of performance was the provision of two bank undertakings for a total sum of $1,299,044. These bank undertakings were forwarded to OMP on 24 September 1998. They are in the form of an unconditional undertaking to pay the sum or sums demanded by OMP up to the stipulated limit "without reference to [WCG] and notwithstanding any notice given by [WCG] not to pay same".

14. By writ filed on 15 March 2000 endorsed for entry in the Building Cases List, WCG sues OMP asserting that its work had been carried out without a concluded agreement and claiming, as a fair and reasonable remuneration for this, the sum of $34,314,156 less $28,568,887 already paid. In addition, it seeks an order that the bank undertakings be delivered up to it as having been given for no consideration.

17. On 23 May 2000 OMP filed a defence and counterclaim. Here it asserts the contract which I have referred to. It says that WCG is precluded and estopped from denying this contract. It characterises the conduct of WCG of acting as if the contract existed as the basis of its work as misleading and deceptive conduct. It then alleges practical completion has been 327 days overdue and seeks liquidated damages at $10,000 per day. I was told that this was the first appearance of such a claim although it is apparent that practical completion has long been an issue between the parties. Next, it alleges failure to rectify defective work in accordance with the directions of the superintendent. This direction is number 466 dated, surprisingly, the same date as the pleading. It is a document of some 50 pages. The damages claimed for this failure to rectify are $300,000. Next, it claims a mistaken overpayment of $165,778 made on 23 December 1999. No particulars of this are provided. Finally, OMP alleges that by three variations, work to a value of $206,374 has been deleted from the contract. These variations are also said to have been issued on 23 May 2000, again the same date as the pleading. The consequence of these deletions is said to be that WCG is indebted to OMG for the value of this unperformed work. It does not appear from the pleading how this indebtedness arises.

20. On the same day, 23 May 2000, OMP called upon the bank to pay in accordance with its undertakings and received $1,299,044. The application presently before the court is brought by summons filed on behalf of WCG on 24 May 2000 seeking orders that these undertakings be reinstated. I heard argument on 30 May and made the orders sought. OMP has sought reasons and these are my reasons.

23. The writ was filed on 15 March. On 24 March OMP filed a notice of conditional appearance and on 6 April filed a summons seeking an order that WCG be restrained from taking a further step in the proceeding or that the proceeding be stayed pursuant to s. 53 of the Commercial Arbitration Act 1984. The basis for these contentions was that the unexecuted instrument of contract contained pre-conditions to the commencement of litigation and also an arbitration agreement.

26. When the matter came on before me for directions on 28 April 2000, it was apparent that a fundamental issue between the parties was the terms of the contract. The determination of this issue underlay WCG's entitlement to the remuneration it sought, OMP's entitlement to restrain or stay the proceeding and OMP's foreshadowed cross-claim for liquidated damages and rectification costs. I discussed with counsel at that time that this might be set down for hearing as soon as possible. I was told on behalf of both parties that it might be helpful for them to go to mediation but that it was desirable that pleadings be delivered before this. Accordingly, I directed that the defence and counterclaim be filed by 26 May to be followed by subsequent pleadings and that the mediator report back by 14 July 2000.

29. What then happened was this. On the following Friday, 5 May 2000, OMP made demand upon the bank for payment. For some reason this was not met and on 23 May the solicitors for OMP made a second demand on its behalf. In their letter of demand, dated 19 May 2000 the solicitors reminded the bank that it was to make payment without reference to WCG and warned it that OMG "will regard any reference to [WCG], prior to the making of the payment, as constituting a breach of the obligations arising under the guarantee". The bank duly made payment and advised its customer WCG at 2.01 pm of this fact. The defence and counterclaim which was filed at 2.56 pm on the same day made mention of the proceeds of the bank undertaking which had been received earlier on that day. The summons presently before the court was filed on the following day. It was submitted on behalf of WCG that OMG was engaging in a tactical manoeuvre to improve its bargaining position at the mediation.

32. I am satisfied that there is a serious issue to be tried as to the terms of the contract under which the work was performed. I am satisfied, too, that there is a serious issue as to whether OMP had any entitlement to require the provision by WCG of the bank undertakings. If the issue as to contract is resolved in favour of WCG it may well be that the undertakings were delivered in circumstances which entitle it to have them returned. In such a case, too, there is likely to be some debate as to the terms of the contract. It is likely that the entitlement of OMP to damages for late completion would be uncertain in that event. It may be, too, that there will be an issue as to the OMP rectification direction number 466.

35. Counsel for OMP argued that all of this was beside the point. His client had the two unconditional bank undertakings and was entitled to call upon them unless the contract between the parties constrained it from so doing. Furthermore, since the bank undertakings had been called upon, the question of contractual constraint did not arise. I was referred to the decision of the Court of Appeal in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd.[2]

38. To my mind this is beside the point. Unlike the Varnsdorf case, there is here an issue as to the existence of the contract under which the undertakings were given. It is seriously arguable that OMG should not have received or retained them - an issue which is one of the subject matters of this proceeding. What OMG has sought to do is to pre-empt the determination by the court of that issue. I would not impose upon OMG, as a Department of State, any higher commercial moral obligation than I would expect of a non-government litigant. Nevertheless, to my mind its conduct in seeking to achieve the commercial destruction of the subject matter of this litigation in circumstances such as the present is conduct that I would view with disfavour in any litigant before the court.

41. The balance of convenience is indisputably in favour of WCG. Its construction manager, Peter Anthony Scanlon, deposed as to the adverse commercial consequences of the calling up of the bank undertakings. Counsel for OMG accepted that, if the undertakings were reinstated, his client's position would not be jeopardised. It will have substitute undertakings which WCG will maintain. In the event that it should hereafter appear that OMG is entitled to call upon these undertakings, any other losses can be adequately protected by an undertaking as to damages.

44. Any concerns which I might have had as to the appropriateness of mandatory injunctions of the kind here sought were dispelled upon my reading the judgments in New South Wales where this course has been adopted. [3]

47. In the circumstances I made orders to the effect that OMG refund the money in exchange for fresh bank undertakings in like terms to those previously held; that WCG maintain them until further order; and that OMG be restrained from calling upon them until further order. I expect that if mediation is unsuccessful the issue as to the contract will soon be determined. I reserved to OMG the liberty to apply for a discharge or variation of the restraining order if it be so advised when this is achieved.

[2] [1998] 3 VR 812.

[3] C S Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd (unreported, Giles J, 26 October 1994, BC 9403174); Sabemo Pty Ltd v Malaysia Hotel (Australia) Pty Ltd (unreported, Hodgson J, 5 July 1990, BC 9002262).