Westpoint Management Ltd (Receivers and Managers Appointed) (in Liquidation) & Anor v QBE Insurance

Westpoint Management Ltd (Receivers and Managers Appointed) (in Liquidation) & Anor v QBE Insurance - [2009] NSWSC 989 - NSWSC 2009 case summary — Zoe

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iii. seeking to set aside a number of paragraphs of the defendant's said notice to produce. The Nature of the Proceedings 3 The plaintiff seeks to recover under what are said to be unconditional performance guarantee bonds issued by the defendant. Its case is that by their terms, the bonds are payable forthwith and without reference to the contractor, upon a demand from the plaintiffs that declares the contractor is in default and that such a default is a Construction Related Event (as defined). The plaintiffs' case is that the performance bonds were unconditional in nature. They are said to have required only that the plaintiffs make a declaration that a 'construction-related event' as defined, had occurred that is, to declare that that had occurred, and the obligation of QBE would arise to pay in accordance with the bonds without reference to the contractor/builder [see American Re-insurance Co v Gervay [2005] NSWSC 802]. Background 4 At all material times the first plaintiff was the trustee of the 60 Market Street Trust (the Trust). 5 The Trust was the proprietor of property located at 60 Market St, Melbourne in Victoria (the Market Street Property). 6 On or about 10 July 2003, the first plaintiff and Westpoint Constructions Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (WCPL) entered into a building contract (the Building Contract) pursuant to which WCPL agreed to execute and complete certain design and construction works in respect of the Market Street Property in consideration for payment by the first plaintiff of the sum of $37,779,000.00. 7 On or about 28 November 2003, the first plaintiff and Perpetual Investment Management Limited (Perpetual) entered into a construction loan agreement (Loan Agreement) pursuant to which Perpetual agreed to provide a loan facility to the first plaintiff in connection with the Building Contract. 8 On or about 28 November 2003, the first plaintiff, WCPL and Perpetual entered into a construction tripartite agreement (Tripartite Agreement) as a condition of Perpetual agreeing to provide the loan facility under the Loan Agreement. 9 On or about 22 June 2004, the defendant issued performance guarantee bond no AO1866305BON dated 22 June 2004 and maintenance guarantee bond no AO1866306BON dated 22 June 2004 (together the Bonds) in favour of the plaintiffs as support for the performance by WCPL of its obligations under the Building Contract and the Tripartite Agreement. 10 The bonds are said to provide, inter alia that:

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iv. that the bonds provide that upon the giving of the certificate of practical completion in relation to one bond, and in relation to the other upon the giving of a final certificate, the bonds come to an end. Proximity to the final hearing 15 The proximity of the hearing requires to be closely born in mind in terms of the limited capacity of the court to case manage proceedings. [See part 6 Case Management and Interlocutory Matters in the Uniform Civil Procedure Rules 2005 New South Wales and the bracket of sections beginning at s 56 and running through to and including s 58]. The motion to set aside the notice to produce 16 It is convenient to firstly deal with the plaintiffs' motion seeking to set aside the aforesaid notice to produce. 17 The notice to produce the subject of the defendant's motion and which Westpoint seeks to set aside has a somewhat complex history. 18 The summons and commercial list statement were filed on 13 October 2008. On 27 November 2008 the defendant filed its response. The plaintiffs' reply was filed on 6 February 2009. 19 On 24 February 2009 the plaintiffs discovered their discovered documents. 20 On 2 April the plaintiffs produced documents under notices to produce issued by the defendant in March. 21 On 13 August 2009 the defendant served notices to produce in identical terms to both plaintiffs. While several categories of documents were sought, in summary the notices sought documents relating to extensions or variations of the time for completion of the building contract or any increase or variation to the price of the building contract. 22 On 30 August the plaintiffs' solicitors, Blake Dawson, sent a fax to the defendant's solicitors, Polczynski Lawyers, stating amongst other things that the plaintiffs had reviewed their records and were unable to locate any documents relating to any extension or variation of the building contract or any increase or variation to the price. 23 On 4 September the defendants served amended notices to produce on the plaintiffs. The documents sought were in substance identical to those sought under the 13 August notices. 24 On 7 September, Perpetual produced documents in answer to the amended notices. It apparently has no further documents to produce. 25 The defendant by its motion now seeks to compel Westpoint to produce documents under the amended notice. 26 The amended notice the subject of the motion is addressed to Perpetual, although it is common ground that it should refer to Westpoint. 27 The evidence of Mr Algeri, a joint receiver for Westpoint, is that there are thirty-two boxes and thirty-nine folders of documents that would need to be searched at an estimated cost of approximately $57,000. 28 Mr Algeri also deposes that:

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"I ask rhetorically where is that pleaded in paragraphs 18 and 19 as being the basis for the question of construction which arises. What seems to be articulated although not pleaded is (a) there was no valid termination, (b) the original building contract continued, (c) the certificates of final completion and practical completion were given under that original building contract but the underlying premise for that argument is the very issue that seems to arise out of the use of the words, purportedly terminated, i.e. that there was in fact no termination and that in turn once properly articulated will give rise to the whole gamut of what was the performance of the builder during the course of this project, not a point which has been addressed by us at any point because it has just never arisen. We've proceeded on the basis that there was - whatever use they wish to make of it. There was an effective termination. They pleaded it. We didn't raise it and now in an unpleaded, unparticularised way they seem to raise this point of nonvalid termination converted into a repudiation and then want to utilise it in an unpleaded way to support paragraphs 18 and 19 and we would be significantly prejudiced by that course being adopted. We would have to, as I have said, go back and it would raise questions of expert evidence, the performance of the builder, why he was delayed and so on ." 38 I am satisfied that at this very late stage the defendant has not made good an entitlement to vary its pleading as sought in the first set of proposed amendments. 39 Further the defendant's reliance upon what it said was the catalyst for its amendment relating to the termination of the agreement fails to take into account that almost 2 months had expired following this matter having been brought to the defendant's attention before the matter was again raised. That period of time seems to me a further reason for denying the amendment Dealing with the second set of purported proposed amendments 40 The current version of the defendant's pleading in paragraph 14K contends that on 13 January 2006, the first plaintiff terminated the building contract relying upon a statutory entitlement to do so and not on any default which was a construction-related event. 41 If allowed the amendment would remove the word "terminated" and replace it with the words "purported to terminate". 42 In this regard it is important to note that up to this point in time the fact of termination or purported termination of the building contract does not form part of the plaintiffs' case. That circumstance is put only in terms of historical background. 43 There is a clear difficulty with the plaintiff or the Court understanding what is meant by the phrase "purported to terminate" in the context of the pleading. The pleading appears to give no adjectival information as to this circumstance. In this regard there is before the Court a letter from the plaintiffs' solicitors to the defendant's solicitors of 7 September 2009 making the point that the plaintiffs' solicitors did not understand what the defendant intended by the insertion of the word "purported". The question put by the plaintiffs' solicitors was as to whether the defendant denied that the termination of the building contract took place or that it was valid. The further question put was, "if so, on what basis does the defendant say that the termination is denied or was not valid?" Finally what was sought by the plaintiffs' solicitors was particulars of the proposed amendment. 44 The response to that letter from the defendant's lawyers of 10 September 2009 relevantly was in the following terms:

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"As a result of the documents annexed to the affidavit of Mr Algeri of 16 July 2009 QBE questions the validity of the termination of the building contract and no longer assets that the building contract was terminated on 13 January 2006. The basis for this is that as at 13 January 2006, notwithstanding that Westpoint Constructions was ready, willing and able to complete the project the receivers had taken over aspects of the construction works that Westpoint Constructions had been retained to perform. In these circumstances the purpose of notice of termination was a repudiation of the building contract by WML. The 13 January 2006 act did not justify the termination of the building contract." 45 The plaintiffs' problem in relation to the seemingly innocuous alteration from "terminate" to "purported to terminate" as revealed in the defendant's above response, is that the matter appears to raise a whole new issue which does not find its way into the pleadings in any way, shape or form. I accept that that matter has never been particularised and that no evidence has been addressed to it, certainly not from the plaintiffs' part, nor forming any part of the plaintiffs' case. 46 As I have understood it, that which the defendants seek to litigate is that as of the date 13 January 2006, notwithstanding that Westpoint was ready, willing and able to complete, the receivers had taken over the construction works. In those circumstances the defendant's proposition appears to be that the purported notice of termination was a repudiation of the building contract by WML. 47 In short, and as the plaintiffs have contended on the motion, the defendants seek, through the change from "terminate" to "purported termination", to run a case of repudiation of the contract between parties to it, [of which QBE is not one], in circumstances where the builder, whose contract was terminated, did not ever respond to the termination notice, did not challenge the termination notice: the defendant having never before sought to pursue this form of case now seeks to run it and to do so for the first time two weeks or so out from a hearing without it having been pleaded. 48 Regardless of the defendant's statement that they do not intend to rely upon further evidence, I accept as pervasive the plaintiffs' position which is that in order to treat with this "new case" they would have to examine the performance of the builder for the entirety of the project to establish what the nature of that performance was as at 13 January 2006 which gave rise to the right to terminate the contract and which does not constitute repudiatory conduct on the plaintiffs' part, i.e. in other words to support the termination. 49 A measure of the disarray, as it seems to me under which the defendant's camp is operating, may be discerned from the following submission and exchange with the defendant's counsel:

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Mr Henry: No, no. It's not, and as I say, I don't have evidence of it but notwithstanding that point, there remains an issue as to, on the proper construction of the bonds, whether or not the certificates referred to in the bonds are the certificates that my friend has referred to." The seeming connection between the two amendments 50 It is important to keep in mind that Mr Henry when addressing made the point that the matters concerning paragraphs 18 and 19 were really a question of construction. His proposition was that what that called into focus was whether or not there was a termination. In those circumstances he appears to have intended to make clear that the two amendments were really related. The amendment as to the purported termination [as the letter of particulars to which I referred makes clear] seems to suggest that there was a repudiation. Although unpleaded in this way and unparticularised in this way, what Mr Henry had said was effectively that if there has not been a valid termination then the contract continued and any certificate of practical completion and any certificate of final completion must be one which is given under the continued contract. 51 To my mind neither of the proposed amendments should be permitted at this stage in these proceedings. The applications are simply too late. Furthermore the proposed amendments are simply too inchoate. 52 The overriding purpose rule and the decision of the High Court to which I have already referred seems to me to make clear that the principled exercise of the relevant discretion is to dismiss the motion for the leave to amend. Costs 53 In the fullness of time following the handing down of the final judgment by the judge who is to hear these proceedings, the issue of which party should at the end of the day bear a responsibility for the costs of obtaining those documents will be open for argument and will naturally abide the exercise of the relevant discretion by the trial judge. Orders 54 The court's orders are as follows:

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