Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited [2008] NSWSC 1248 | Case summary

55011/08 WALTON CONSTRUCTION PTY LIMITED v ILLAWARRA HOTEL COMPANY PTY LIMITED JUDGMENT 1 HIS HONOUR: The plaintiff (Walton) is a builder. It agreed with the defendant (Illawarra Hotel) to carry out refurbishment and other works in respect of hotel premises at Wollongong of which Illawarra Hotel was the proprietor. The contract was made on 26 April 2006. However, work started some months earlier, on 9 January 2006, apparently pursuant to what the parties have called "a letter of intent". 2 The contractual date for practical completion was 5 August 2006. That date was extended by the superintendent under the contract up until 28 November 2006. According to the superintendent, practical completion was not in fact achieved until 9 July 2007. 3 Walton asserts that it is entitled to further extensions of time (past 28 November 2006) totalling some 231 days. In these proceedings, it claims declaratory relief in relation to that extension of time, payment of delay costs and payment for what it says were variations carried out under the contract. 4 Illawarra Hotel has cross-claimed against Walton. There are in substance two elements to that cross-claim. One relates to what Illawarra Hotel, basing itself on the superintendent's certification, says was the substantial delay in completion of the works. The other claim relates to alleged incomplete and defective work. There is also a claim for misleading or deceptive conduct. I shall return to that. The applications 5 There are a number of applications before the court. Walton seeks orders striking out paragraphs 10 to 13, 14 to 19 and 20 to 25 of Illawarra Hotel's cross-claim list statement. Alternatively Walton seeks security for its costs of defending that cross-claim. 6 Illawarra Hotel seeks to amend its cross-claim. First, it wants to join two further cross-claimants. Secondly, it wants to add an alternative claim for damages for what it says was the delayed opening (or reopening) of the hotel. 7 Further, Illawarra Hotel seeks security for its costs of defending Walton's claim. That application has been resolved but for the question of costs. Background 8 Illawarra Hotel is the proprietor of the freehold of the hotel premises. It appears to be the trustee of a trust of which two partners, companies known as Waldemar Pty Limited and Vosava Pty Limited, are beneficiaries. There is no direct evidence of those matters but they may be inferred from some of the financial statements that are in evidence. Those financial statements cannot be regarded as conclusive because, for reasons that I must confess I do not understand, although some of them refer to the existence of the trust, they appear to treat the interests of Illawarra Hotel in the assets and income of the trust as being its beneficiary? However, for reasons that will become clear, it is unnecessary to pursue this possible conundrum. 9 Illawarra Hotel says that it has leased the hotel premises to Vosava and another company, Gamone Pty Limited. It appears that both Vosava and Gamone operate the hotel business, and thus receive the revenues of that business. They trade together as "Hotel Illawarra". Paragraphs 10 to 13 of the list cross-claim statement 10 Paragraphs 1 to 9 of Illawarra Hotel's contentions in its list cross-claim statement, allege, among other things, the letter of intent, the contract, relevant terms of the contract and what is said to be Walton's failure "to proceed with due expedition and without delay" so as to complete works by the date of practical completion. A number of particulars of this allegation are given. 11 Paragraph 10 then alleges that by reason of those breaches, Illawarra Hotel suffered loss and damage in that it did not receive the rent that it should have received over the period of delay: said to be 29 November 2006 to 10 July 2007. It appears to be common ground that the claim for loss of rent is made by reference to a lease of the hotel premises from Illawarra Hotel to Vosava and Gamone. 12 Paragraph 11 alleges that Illawarra Hotel "incurred expenses in having Paul Anzani liaise with the plaintiff's foremen in the absence of one Mr Chris Jerez, who apparently (according to Illawarra Hotel) was to have been Walton's onsite supervisor. The particulars to paragraph 11 simply state "[a]mount payable in respect of Paul Anzani, $42,580.81." 13 Paragraph 12 alleges that Illawarra Hotel incurred expense in paying more by way of fees to its architect than it would have been required to pay had the works been completed by the extended date for practical completion. The amount of those additional fees is particularised. 14 Paragraph 13 alleges that Illawarra Hotel "is obliged to pay to the Hotel business operators the costs incurred by the operators in hiring staff in anticipation of the opening of the hotel prior to 9 July 2007". The particulars given are "[c]ompensation payable to operators: $20,132.53". 15 Mr M R Gracie of counsel, for Walton, submitted that paragraph 10 should be struck out, on the basis that the case that it propounded was hopeless. The submission in substance was that the lease by reference to which this aspect of the damages was calculated was one made on 10 August, 2006, with a commencement date of 1 January 2006, in circumstances from which the court should infer that it was not an arm's length transaction. Mr Gracie submitted that a claim for damages formulated or calculated by reference to such a transaction could not be said to fall within either of the heads of damage for breach of contract recognised in Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145. In substance, Mr Gracie submitted, a loss formulated or calculated in this way could not be either one that might fairly be considered as arising naturally, or according to the ordinary course of things, from the breach alleged. Nor could it be one that should be regarded as such a loss as might reasonably be supposed to have been in the contemplation of the parties, at the time they made their contract, as a probable result of the breach. 16 There is much to be said for the proposition that Mr Gracie's submissions may afford an answer to the claim at trial. However, it is not necessary to express even a tentative, let alone a concluded, view on that point. That is because the very nature of the test is one that requires the court to have regard to the context in which the contract was made, in order to understand the application of both legs of what Alderson B laid down in Hadley v Baxendale. Cole J made that point in Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, both in relation to claims for liquidated damages generally and in relation to the particular formulation (by reference to holding costs) that his Honour was there required to consider. 17 An application to strike out (whether brought, as mistakenly this was, pursuant to UCPR r 14.28 or otherwise) does not require, or indeed permit, the court to undertake some preliminary trial of the factual issues. As I have said, Mr Gracie's point may very well be a good one. However, it is not a point that is available on an application to strike out, or for summary dismissal of a particular claim. 18 In this context I note that one of the amendments sought by Illawarra Hotel was to add an alternative formulation, paragraph 10A, of its claim for damages. That reads as follows: 10A. Alternatively to paragraph 10, by reason of the Cross-defendant's aforesaid breaches the Cross-claimant has suffered loss and damage in that it was deprived of the benefit of trading profits which would have been received from the operation of the Hotel but have not been received as a result of the delay until 9 July 2007 in the Cross-defendant bringing the relevant contract to practical completion. 19 To the extent that it is necessary to consider paragraph 10A at this point, all I need do is say that if it should be permitted to be added - and for reasons that I shall give, I have concluded that it should not - then it too would raise a question of fact not suitable for disposition on a summary basis. 20 The position in relation to paragraphs 11, 12 and 13 is somewhat different. There is nothing in those paragraphs that indicates, even to an attentive reader, the basis on which it is said the losses claimed flow from the breach or breaches alleged. In this context, I note that list statements, both for plaintiffs and for cross-claimants, are required among other things to state the allegations that are made with adequate particulars and the legal grounds for the relief claimed (see Practice Note SC Eq 3, paragraphs 9.2, 12). 21 As to paragraph 11: such evidence as there is appears to suggest that Mr Anzani was some sort of consultant who carried on business on his own account. Apparently by way of support for this aspect of its claim, Illawarra Hotels provided to Walton a bundle of invoices from "Paul Anzani Consulting". Some of those invoices were addressed to one Mr Garry Kam, of an entity known as "Executive Look". Although it is suggested that Mr Kam is in some way associated with either Illawarra Hotel or one of the related entities to which I have referred, there is nothing to show why Illawarra Hotel might have had any liability for an invoice from Mr Anzani to Mr Kam at "Executive Look". 22 The other invoices appear to be addressed to "Hotel Illawarra". As I have said that is the trading name under which Vosava and Gamone carry on the hotel business. Again, there is nothing to indicate why Illawarra Hotel (by which, to ensure that there is no confusion, I mean the defendant and not the trading entities) should have a liability to those trading entities for those expenses. 23 Walton's solicitors sought particulars of the claims made in paragraphs 11 to 13. As to paragraphs 11 and 12, the particulars merely sought specification of how the amount claimed was calculated. As to paragraph 13, equivalent particulars were sought and also particulars as to any understanding or belief that the hotel might open prior to 9 July 2007. 24 Mr R A Parsons of counsel, who appeared with Ms H Durham of counsel for Illawarra Hotel, submitted that these were merely particulars of calculation, and not going to the question of entitlement. I am not sure that I agree with this, because a specification of how the amount was calculated would (or should) take into consideration the entitlement (if any) by reference to which it was calculated. But in my view that does not matter, because the totally opaque nature of the allegations in question means they do not give any reasonable notice to Walton of the case that it has to meet on this point. Thus, in my view, the allegations in question do not comply with the relevant requirements of the practice note. 25 Further, in this context, I note that Illawarra Hotel's solicitor stated, in relation to all the particulars sought, that they were all "either matters of evidence or ... particulars of particulars furnished in the cross-claim, which particulars are clearly adequate". For the reasons that I have given, I do not agree with that. 26 The point is especially clear in relation to paragraphs 11 and 13, because it is not suggested that the persons in respect of whom, or to whom, those expenses were paid were employees of or consultants to Illawarra Hotel. On the contrary, so far as I am aware, Mr Anzani appears to be some sort of manager or overseer retained by or on contract to Vosava and Gamone. 27 The position might be slightly different in relation to architect's fees. However, even there, it is not made clear whether the fees are payable to her for architectural services in respect to design and supervision, or for her services as superintendent. 28 In my view, the complaints in respect of paragraphs 11 to 13 are justified, and the appropriate remedy is to strike them out with leave to amend. Paragraphs 14 to 19 29 These paragraphs assert the claim for misleading or deceptive conduct. The misleading or deceptive conduct alleged is said to be founded on representations made in about December 2005 and about June 2006. There is no allegation of why it is said those representations were, when made, misleading or deceptive. Mr Parsons said this could be cured by a simple amendment to the alleged reliance on s 51A of the Trade Practices Act, 1974. 30 It is then asserted that by reason of the misleading or deceptive conduct (it having been said that Illawarra Hotel relied on the representations to close down "the entire operations of the hotel business, other than the gaming room"), Illawarra Hotel suffered loss and damage. That is particularised by reference to additional rental that would have been received. The period in respect of which this claim is made is September 2006 to 10 July 2007. For reasons that are entirely unclear the additional rental is a figure different to that alleged in paragraph 10. Perhaps - I do not know - this is because the rental included both a base rental and a turnover rental. 31 Mr Gracie makes the point that on the records that Illawarra Hotel has produced, it appears that the bars continued to operate for almost the whole period in question. Thus, he submits, as a matter of fact this aspect of the claim must fail. 32 Mr Parsons submitted that, properly understood, and considered in whole and in context, the records might indicate some different outcome. 33 Further, Mr Gracie submitted, it would have been illegal to operate the gaming business of the hotel otherwise than in conjunction with, or as an adjunct to, its liquor trade. I am not certain of the relevance of this submission. Assuming for the moment the truth of what is alleged in the paragraphs in question of the list statement, it could be said that the continued operation of the gaming business, whether legal or not, was something undertaken in mitigation of loss. It is not often that a party liable to pay damages (assuming for the moment that Walton is) complains that the party entitled to damages acted so as to mitigate its loss. 34 In any event, as it seems to me, there is the same problem with these paragraphs as there is with paragraph 10. The answer - if it is an answer - is one of fact. 35 At first, I thought it might be simpler to strike out the paragraphs and give leave to amend. However, in circumstances where the only relevant amendment would be one to allege s 51A, I do not think that that is the proper course to take. It is sufficient to give leave to amend. Paragraphs 20 to 25 36 These paragraphs raise the claim for defective and incomplete work. The particulars of the work that was defective or incomplete, and of the requirement to rectify or complete it, are given by reference to directions said to have been issued by the superintendent. There was some to-do as to whether all relevant directions had been produced. It is plain that the one of 4 January 2008 - which might be called the most relevant or operative direction - has been produced. It is equally plain that Walton in truth is able to identify the directions upon which reliance is placed, and to obtain them from its own records. Thus, whilst I do not wish to condone the approach taken by Illawarra Hotel's solicitor in relation to furnishing the documents, I do not think that the failure to furnish them of itself leads to the conclusion that this aspect of the cross-claim should be struck out. 37 The claim is one for the cost of rectification. That is said to be something to be particularised "at a later time". In my view that time has arrived. Further, in my view, it is appropriate for the claim to be "particularised" by way of a Scott Schedule. I propose to give directions for that to be done. 38 In summary, I do not think that paragraphs 20 to 25 should be the subject of any summary disposition. Walton's application for security for costs 39 Whether the application is to be regarded as one brought pursuant to UCPR r 42.21(d) or pursuant to s 1335 of the Corporations Act, it is necessary to show there is reason to believe that Illawarra Hotel, as cross-claimant, would be unable to pay the costs of Walton, as cross-defendant, if ordered to do so. It is convenient to refer to that as the "jurisdictional" fact, although the term is strictly speaking inaccurate. 40 It is clear that a party seeking security for costs bears the onus of establishing the jurisdictional fact. 41 In this case, in support of its submission that the jurisdictional fact had been proved to the requisite degree, Walton relied on two affidavits of an accountant, Mr Brent James, and on what it said was the continued and repeated refusal of Illawarra Hotel to produce documents relating to its financial affairs. To some extent, the two matters are related. 42 Mr James furnished two reports. In his first report, based on the material then available to him, he concluded that he could not "form an opinion of the current financial circumstances of Illawarra Hotel" nor could he "form an opinion as to whether Illawarra Hotel will be able to meet a costs order, should such an order be made". 43 It appears that Walton obtained further documents from Illawarra Hotel, and provided them to Mr James. He was asked, among other things, to consider those documents and report as to whether that material "impacts upon [his] original findings as stated in" his first report. Relevantly for present purposes, he concluded that his original findings "remain unaffected". In particular, he remained unable by reference to the additional material (either considered alone or in conjunction with the earlier material considered by him), to express a view as to whether Illawarra Hotel would be able to meet any costs order made against it, of the quantum that he was asked to assume might be made. 44 On this basis, it seems to me, Walton has simply failed to establish the requisite jurisdictional fact. Thus, if matters went no further, its application for security for costs should fail. However, as I have said, Mr Gracie relied on what he said was the failure by Illawarra Hotel to produce its financial information, either promptly or at all. 45 There was much debate between counsel as to whether Illawarra Hotel had, or had not, been guilty of delay or obstruction in producing its financial records. I do not need to express a concluded view on that, although if it were necessary to do so I do not think I would be persuaded that anything material has been withheld. The material that has been produced includes financial statements and what might be called management reports or management accounts. The financial statements do not appear to go past 30 June 2007. The management reports, which appear to be extracted from Illawarra Hotel's bookkeeping system, go at least to 30 June 2008. 46 If there were some basis for concluding that the jurisdictional fact might be made good - ie, if an inference as to the existence of the jurisdictional fact was otherwise available - then failure to produce information (if it should be made out) might assist in the drawing of the inference. But where the inference is not otherwise available, any such failure (and I repeat that I am not to be taken as finding that there was any such failure) does not really take the matter further. 47 Thus, I am not persuaded that there is reason to believe that Illawarra Hotel would not be able to meet a costs order of the kind suggested if it were made. On the contrary, such evidence as there is suggests that it might not have any problem in meeting a costs order. The financial statements to 30 June 2007 suggest that Illawarra Hotel had a substantial surplus of assets over liabilities. Although the nature of Illawarra Hotel's beneficial entitlement (if any) is unclear, it is clear that even absent a beneficial entitlement Illawarra Hotels would be entitled to be indemnified out of trust assets. 48 There is no equivalent balance sheets, even in draft, as at 30 June 2008. Thus, the same degree of confidence does not exist. However, the management accounts include a draft profit and loss statement which suggests that Illawarra Hotel traded profitably, to the tune of about $530,000.00, for the twelve months to 30 June 2008. 49 Mr James drew attention to a substantial bill facility, about $4.3 million, for which Illawarra Hotel was liable. He said that there was no way that he could consider the ability of Illawarra Hotel to repay that facility if required to do so. There is, however, evidence that Illawarra Hotel has met out of its revenues a substantial interest liability to the bank, which I assume relates to that bill facility. 50 In this context, I should say that Mr Parsons tendered what purported to be a valuation report prepared by a Mr Phil Rennie. For reasons that I gave earlier today, I rejected the tender of that report. Thus, the court was not assisted by evidence of the current asset and liability position of Illawarra Hotel. Even if the report had been admitted, and given some weight, it would have showed only one side of the balance sheet position. 51 But having said that, it remains the case that Walton has failed to discharge its onus of proving the jurisdictional fact. 52 There is an alternative problem with Walton's claim for security for costs. As I have said, there are in substance two separate aspects of the cross-claim. Part relates to alleged delay in completion. That is a claim which is defensive to, or reflexive, of the claim brought by Walton in relation to the extension of time. In effect, Illawarra Hotel says, if it successfully repels that claim and shows that there has been a delay in completion, it is entitled to damages accordingly. 53 On ordinary principles, where a cross-claim is purely defensive to or reflexive of the plaintiff's claim, security for costs would not be granted in respect of the cross-claim. Mr Gracie submitted that this ordinary principle was not applicable, because Illawarra Hotel had intimated that it would bring this claim before Walton brought its own claim. I have to say that I do not understand why that fact - presuming it to be correct - displaces the ordinary position to which I have referred. 54 In this context, I think, the claim for misleading or deceptive conduct is to be regarded as sufficiently related to the time claim as to raise no separate issue that might require some alternative analysis. 55 The only aspect of the cross-claim which is not defensive or reflexive is that related to incomplete or defective work. It may be that some security could be ordered for that part of the cross-claim, if the jurisdictional fact had been made good. But Walton's evidence of quantification of the amount claimed by it related to its entire costs of defending the cross-claim. No attempt was made to apportion the amount claimed between the different aspects of the cross-claim. Nor, so far as I am aware, is there anything in the evidence that would enable the court to undertake such an apportionment for itself - even wielding the broadest of brushes available. 56 Thus, even if the jurisdictional fact had been made good, there is no basis on which the court could assess the quantum of costs relating to that part of the cross-claim which could not be regarded as purely defensive or reflexive. Illawarra Hotel's application for leave to amend 57 As I have said, there are two aspects of this application. The first aspect seeks to add Vosava and Gamone as cross-claimants. That application is apparently made in answer to the proposition that the lease from Illawarra Hotel to them was not an arms' length transaction. Mr Parsons submitted that their joinder was necessary or desirable, in terms of UCPR r 6.24, so that they would be bound by whatever conclusions the Court reached on this aspect. 58 I must say that I do not understand the submission. It was not put that Vosava or Gamone had any legal or beneficial interest in the subject matter of the dispute, nor that they had any concurrent, or for that matter alternative or additional, claim against Walton arising out of the factual matrix that has given rise to this litigation. There was simply no demonstration of why, in terms of r 6.24, their joinder was necessary for the determination of all matters in dispute. 59 I accept that there are situations where a party may be joined to ensure that it is bound. That is usually done by joining the party as a defendant, on the basis that it will submit to such order as the Court may make. It is also done because the relief sought directly affects that party, and thus in a real sense can be said to be sought "against" that party. 60 In this case it is not sought to join Vosava and Gamone as cross-defendants. If they were so joined, no relief would be sought against them and thus their joinder as cross-defendants (if sought) would be inappropriate. Where it is not said that they have any interest in the proceedings or any claim, and where there is no demonstration of any utility in their joinder, I do not think that the proceedings should be cluttered by having them as parties. 61 The other aspect of the application for leave to amend relates to the proposed paragraph 10A. I have already set that out. 62 The case sought to be advanced by that paragraph is apparently intended to accommodate the possibility that Mr Gracie's submissions, as to the claim for damages based on the lease to Vosava and Gamone, might succeed. However, that does not mean that Illawarra Hotel should be given leave to amend. It is not a case of alternative claims available on the overall factual matrix, or presumed factual matrix. The position is that, for better or worse, Illawarra Hotel has chosen to put in place the arrangements to which I have referred. Those arrangements include one whereby Illawarra Hotel does not operate the hotel business, and thus does not receive trading profits from the operation of that business. The hotel has been leased to, and the hotel business is operated by, Vosava and Gamone. They receive the profits, or suffer the losses, of the operation of that business. 63 In my view, it would be entirely inappropriate, and inimical to the just, quick and cheap resolution of the real issues in dispute, to permit Illawarra Hotel to maintain, in the alternative, a claim for which, on any view, there is simply no available factual foundation. This is not a case where one view of the facts might indicate some support for the case proposed to be advanced. The situation is, rather, that the arrangements that have been put in place necessarily foreclose, against Illawarra Hotel, the case that it would seek to advance through paragraph 10A.

Walton Construction Pty Limited v Illawarra Hotel Company Pty Limited

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Judgment (15 paragraphs)

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