New South Wales Supreme Court CITATION : QMT Constructions Pty Ltd v Carringbush Corporation Pty Ltd & 1 Ors [2000] NSWSC 577 FILE NUMBER(S) : SC 55047/99 HEARING DATE(S) : 5/05/00 JUDGMENT DATE : 26 June 2000 QMT Constructions Pty Limited (Plaintiff) PARTIES : Carringbush Corporation Pty Limited (First Defendant) Oversea-Chinese Banking Corporation Limited (Second Defendant) JUDGMENT OF : Einstein J COUNSEL : Mr Ian Faulkner (Plaintiff) Mr Robert Newlinds, Mr Peter Newton (Second Defendant) SOLICITORS : Walker Law Group (Plaintiff) Heidtman & Co (Second Defendant) CASES CITED : General Steel Press v Commissioner for Railways (1964) 112 CLR 125 DECISION : I ORDER that the plaintiff's claim against the second defendant be dismissed; that the plaintiff pay the second defendant's costs of the proceedings, including costs of the subject motion. I DIRECT that all reserved costs be included in the order now made that the plaintiff pay the second defendant's costs of the proceedings. THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION - CONSTRUCTION LIST EINSTEIN J Friday 5 May - ex tempore Revised 26 June 2000 055047/99 - QMT CONSTRUCTIONS PTY LTD v CARRINGBUSH CORPORATION PTY LTD & 1 ORS. JUDGMENT 1 HIS HONOUR: In proceedings 055047/99 which are now before the court, in terms of a notice of motion filed on 13 March 2000, the second defendant seeks an alternative order to the order that the plaintiff's claim be dismissed, namely an order that the proceedings be listed before a Judge for a separate determination of the liability of the second defendant. In support of the notice of motion, the second defendant has read an affidavit by Ms P L Cable sworn on 30 March 2000. 2 The plaintiff in its amended summons filed on 24 March 2000 seeks orders in paragraph (i) on p 1 of the amended summons for rectification of a Deed made between the parties, in terms of the date of the Deed being rectified from 29 November 1996 to 8 April 1998. On the argument which has taken place today this aspect of the pleading is immaterial. The second prayer for relief claims an order for "Payment in the nature of quantum meruit or alternatively damages and interest of $965,489." 3 It is inappropriate in this judgment to repeat section C of the plaintiff's Contentions in the amended Summons. 4 The position, as I have understood it from the respective counsel, is that there is no issue, but that there was a written contract entered into between the plaintiff and the first defendant whereunder the plaintiff agreed to carry out certain building works for the first defendant as proprietor at 9 Curagul Road, Turramurra at a cost of approximately $3.2 million, it being, common ground, as I understand it, that the contract was a lump sum contract contained in a formal Instrument of Agreement dated 19 November 1997. 5 It is also common ground that the second defendant was relevantly the financier who provided loan funds to the first defendant for the works to be done under the Building Contract. That finance was made available pursuant to certain agreements between the second defendant and the first defendant particularly a Building Contract Mortgage dated 29 November 1996 and a Construction Loan Facility dated 29 November 1996. Those documents are appended to the affidavit of Ms Cable. 6 Also before the court, by way of an exhibit not objected to, is the document entitled 'Deed of Consent' dated 29 November 1996 and entered into between all three parties. [The first defendant is described as 'the Mortgagor', the second defendant is described as 'the Mortgagee' and the plaintiff is described as 'the Builder']. The Deed recites the Construction Loan Facility Agreement of the same date whereunder the Mortgagee agreed to make available advances and other financial accommodation to the Mortgagor upon the terms and conditions therein contained. The Deed also recites that in consideration of and as further security for this financial accommodation, the Mortgagor and Builder had agreed to execute the Deed with the Mortgagee on the terms and conditions appearing in the document. The definition section of the Deed defines the word "Agreement" to mean the Construction Loan Facility agreed between the Mortgagor and Mortgagee." The Building Contract" is defined to mean the Fixed Price Building Contract of 19 November 1997 between the Builder and the Mortgagor with respect to the subject property. 7 The document includes in Clause 2 a clause entitled "Builder Consent to the Mortgage and Assignment of the Building Contract". The clause provides: "The Builder : (a) consents to the mortgage and assignment to the Mortgagee of the Mortgagor's right, title and interest in the Building Contract between the Builder and the Mortgagor together with any other Building Contracts between the Mortgagor and the Builder in form and substance acceptable to the Mortgagee pursuant to the Building Contract Mortgage; (b) acknowledges that this Deed constitutes notice in writing of such assignment to the Mortgagee of the whole of the Mortgagor's right, title, and interest in the Building Contract." 8 Clause 3 sets out the obligations of the builder. It is unnecessary now to repeat those obligations save to make it plain that the obligations require the Builder to give relevant written notice to the Mortgagee and otherwise to protect the Mortgagee in terms of the builder's position qua the building contract. 9 Clause 4 is entitled "Variation of the Building Contract" and provides that "the Mortgagor and Builder shall not cause or permit the Building Contract to be terminated, rescinded, or materially varied during the Security Period without the Mortgagee's written consent and any right, power, or entitlement of the Builder and the Mortgagor to terminate rescind or vary the Building Contract without the Mortgagee's consent is hereby suspended during the security period." 10 Clause 6 is also of some relevance in providing for the mortgagee's consent. The clause provides as follows:- "Anything which under the Building Contract requires the consent of the Mortgagor shall also require the consent of the Mortgagee and any notice or demand served pursuant to the Building Contract upon the Mortgagor by the Builder or upon the Builder by the Mortgagor shall also be contemporaneously served upon the Mortgagee." 11 There appears to be no issue but that the subject contractual documents include the letter of offer dated 14 November 1996 from the second defendant to the first defendant which is in evidence. It is unnecessary to exhaustively set out the detail of this document. It appears to be an Australian Dollar Construction Facility with a limit of $4.8 million for the purpose of assisting in the development of the subject project. The term is a maximum two years from the date of drawdown and there is a provision that repayment in full upon expiry of the Facility is to take place in terms of the Principal. One hundred per cent of net sale proceeds are to be applied until all principal, interest and fees have been paid in full. 12 Paragraph 13 identifies the securities and in terms of the later formal Facility Agreement, is imported by par 23.1 (f). The security obligations of the first defendant are to provide a first registered mortgage over the land and dwellings to be constructed, and to provide a first registered charge over the assets and undertaking of the first defendant. Joint and several guarantees are to be provided by certain named entities. 13 Special Condition 16 sets a condition precedent:- "The Bank is not obliged to make any Facility available unless the Bank is satisfied that the Customer has complied with all conditions precedent, including the conditions specified in this letter and all information provided and executed security documents have been completed and executed to the satisfaction of the Bank or its solicitors." 14 Other conditions precedent require that the Bank, that is to say the second defendant, be satisfied with the nature and value of the security and that the first defendant enter into a Fixed Price Building Contract for not more than $3.050,000 with a builder acceptable to the Bank. That condition includes the words "The contract is to be in a form acceptable to the Bank and is to be assigned to the Bank and is to include a Retention of not less than 5% of the Contract sum." 15 The affidavit to which I have referred also annexes a Deed of Assignment by way of Security dated 29 November 1996 between the first and second defendants. That Deed has recitals A and B as follows:- A. By Construction Loan Facility Agreement of even date between the Mortgagor of the one part and the Mortgagee of the other part (hereinafter called the " Loan Agreement ") the Mortgagee agreed to make certain advances and to provide banking and other financial accommodation to the Mortgagor upon the terms and conditions therein contained. B. By way of collateral security for the obligations of the Mortgagor under the Loan Agreement and for the purpose of securing to the Mortgagee the payment of the Moneys Hereby Secured (as defined in the Memorandum) the Mortgagor has agreed to execute this Deed. 16 Clause 2.1 deals with assignment and provides as follows:- 2.1 For the purposes of securing to the Mortgagee the obligations of the Mortgagor under the Loan Agreement and the whole of the Moneys Hereby Secured the Mortgagor hereby assigns, transfers and sets over to the Mortgagee the Building Contract and all the interest whatsoever of the Mortgagor under and by virtue of the Building Contract and all the estate interest or right whatsoever of the Mortgagor in and to the Building Contract to hold the same to the use of the Mortgagee absolutely subject to the proviso for redemption contained in Clause 2.3. 17 Clause 2.3 of the document provides:- 2.3 If and when the Mortgagor pays and satisfies all of the Moneys Hereby Secured as required by the Loan Agreement and any collateral security the Mortgagee will at the cost of the Mortgagor reassign the Building Contract to the Mortgagor or as the Mortgagor directs. 18 Returning to the respective submissions in relation to the subject motion, the second defendant through Mr Newlinds of counsel, who initially addressed, has submitted that the context in which the matter arises requires to be carefully analysed. Mr Newlinds has referred to the way in which the principal paragraphs in the pleading are pleaded against the second defendant. Indeed subject to the earlier paragraphs 1, 2, 3, and 4, the only paragraphs in the Notice of Contentions pleaded against the second defendant, are paragraphs 5, 6.1 and 6.2. 19 These paragraphs are in the following terms: 5. Upon the true construction of the Deed referred to in paragraph 4 above, in order to enjoy the assigned benefits thereof, the Second Defendant was subject to obligations under the Building Contract, including the obligation to reimburse the Plaintiff or to ensure that the Plaintiff was reimbursed for the works carried out by the Plaintiff pursuant to the Building Contract. 6..1 Pursuant to the assignment referred to in paragraph 4 above, the Second Defendant enjoyed the benefits of the entirety of the works performed by the Plaintiff under the Building Contract. 6.2 In breach of its obligations referred to in paragraph 5 above, the Second Defendant has not reimbursed the Plaintiff or caused to be paid to the Plaintiff the value of works carried out by the Plaintiff. Particulars (i) At 23 March 1999, the Plaintiff had carried out works under the Building Contract to the value of $3,794,247 for which it had been paid $2,893,029, leaving an unpaid balance of $901,218. (ii) The Plaintiff's Written Claims Summary dated 15 March 1999. 20 Mr Newlinds submits [and I accept that this seems to be common ground], that the purpose of the assignment of the Building Contract was to provide security to the second defendant for the debt due by the first defendant under the Loan Agreement. That purpose I accept is expressly set out in the documents to which I have referred, namely, the Facility Letter of Offer of 14 November 1996, the Facility Agreement itself of 29 November 1996, the Deed of Assignment by way of Security of 29 November 1996 and the Deed of Consent itself. 21 It appears to be also common ground, indeed this is part of the way in which the plaintiff puts its case, as I understand Mr Faulkner, that as part of the security for the loan, the second defendant also received amongst other things, a mortgage over the subject development. 22 It seems to be common ground, and I have not heard either Mr Newlinds or Mr Faulkner submit to the contrary, that the second defendant's interest being a security interest in the property and in the Building Contract, was defeasible, that is to say annullable, upon performing the condition of paying the sum of monies due under the Mortgage. Likewise upon repayment of the loan, the second defendant was required to reconvey the property and its interests in the Building Contract to the first defendant. That right of redemption in relation to the assignment of the Building Contract is set out in clause 2.3 of the Deed of Assignment. 23 To my mind, on the evidence, it appears clear that the Deed of Assignment and Consent, cannot be said to have purported in any way to vary the rights and obligations of the primary parties under the Building Contract. To my mind it cannot be said that upon execution of the Deed of Assignment and Consent, the second defendant became liable to the plaintiff for payments due under the Building Contract. 24 Essentially, as I have understood the submissions put by the second defendant, the difficulty which the plaintiff faces, in terms of the seeking to propound a cause of action against the second defendant, centres upon inability of the plaintiff to define in any meaningful way what are the so-called "benefits" said to have been enjoyed by the second defendant [sought to be pleaded in par 6.1 of the amended summons], being benefits which the plaintiff, as I have understood Mr Faulkner's submissions, under its quantum meruit claim, seeks to assert are (a) benefits which were received by the second defendant and (b) benefits which in the circumstances it would be unconscionable for the second defendant to retain without making payment to the plaintiff. 25 Stepping back for a moment from the close examination of the contractual documents, it seems that this is a case in which the plaintiff, as Mr Faulkner concedes, relies solely on a claim against the second defendant under the quantum meruit head. It seems that the essential salient facts are that the Building Contract was entered into, the second defendant loaned funds to the first defendant to permit the subject works to be carried out, at a later date the second defendant was paid out in full under the Finance Facility, so that the second defendant then, on redemption, no longer retained any interest whatever in the subject property. 26 As it happens, on the plaintiff's pleading, the circumstances which gave rise to the proceedings in the first place, involved the 23 March 1999 alleged act by the first defendant said to have been in breach of clause 44 of the Building Contract, whereunder the first defendant allegedly without any power or authority under the Contract and allegedly in breach thereof is said to have excluded the plaintiff from the building and is said thereby to have repudiated the Building Contract. [Contentions paragraph 12] 27 The allegation is that the plaintiff accepted the first defendant's repudiation and that the first defendant then completed the building works. The plaintiff asserts that it has a claim for the unpaid building works which it carried out prior to the first defendant taking out of the plaintiff's hands, the remainder of the building works. This claim by the plaintiff for recovery of the unpaid value of the building works is accepted by Mr Faulkner as the real burden of the claim sought to be pursued. The difficulty is that the plaintiff not only pursues that claim against the logical defendant, namely the first defendant, but that the plaintiff seeks to make good the proposition that through a quantum meruit channel, the second defendant is liable also to the plaintiff for recovery of the unpaid value of the building works. 28 During the course of address Mr Faulkner was asked to identify precisely what are the benefits which, on the plaintiff's case, the second defendant obtained and enjoyed, that enjoyment, as I understand the argument, then giving rise to the alleged quantum meruit liability of the second defendant to the plaintiff. 29 Those benefits on Mr Faulkner's submissions, are "the entirety of the works carried out by the plaintiff in respect of which it was not paid." 30 Whilst it certainly may be the case that during the period whilst the second defendant had not been paid out and after the subject Deed of Consent had been entered into, it was the case that the second defendant had a coterie of rights pursuant to the contractual arrangements to which I have referred, including the mortgage right conferred by the Mortgage, to my mind it is plain, from the contract documents, that the first defendant remained bound at all material times to comply with its contract with the plaintiff and that at no stage did the plaintiff release the first defendant from that obligation. 31 It is clear, and I accept, that the plaintiff asserts that, by Cl 2.1 of the earlier Deed of Assignment to which I have referred, the parties to that Deed agreed, in terms of the wording in the clause, that for the purpose of securing to the mortgagee the mortgagor's obligations under the Loan Agreement, there was an assignment and transfer over to the mortgagee of "the Building Contract and all interests whatsoever of the mortgagor under and by virtue of the Building Contract ...". 32 The plaintiff asserts that this must be an assignment of not only the benefit but also the burden of the subject building contract. 33 To my mind the plaintiff's case is simply misconceived, the pleading is demurrable and on the evidence now before the court, the pleading applying the usual principles, does require to be struck out. 34 I am well aware of the significance of the court striking out a pleading and of the undoubted requirement that the lack of a cause of action requires to be demonstrably clear. The authorities go back to General Steel Press v Commissioner for Railways (1964), 112 CLR 125:- "The jurisdiction on summary termination of an action to strike out certain portions of a pleading is to be sparingly employed and not be used except in a clear case where the court is satisfied that is the requisite material ... conclusion." 35 The test to be applied has been variously expressed: "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not permit of argument"; "discloses a case which the court is satisfied cannot succeed"; "no possibility that there can be a good cause of action"; "manifestly faulty so that to allow the pleading to stand would involve useless expense." 36 As Barwick CJ said in General Steel at 129, the subject expressions occur in cases of different types. However, once it appears, as his Honour pointed out, that there is a real question to be determined, whether of fact or law, and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action. 37 In an attempt to follow the plaintiff's submissions I have striven to endeavour to understand how it is that the plaintiff is able to identify the subject benefit. To my mind the wording "the benefits of the entirety of the works performed by the Plaintiff under the Building Contract" now appearing in clause 6.1 of the amended summons are embarrassing and fall considerably short of identifying with the necessary specificity, precisely what those alleged benefits are. 38 The only benefit which the second defendant appears to have had during the period of time until redemption was that it had the assignment of the benefit of the contract through its securities. There appears to be no issue but that it ultimately was paid out and that it redeemed. In those circumstances I do not follow that there was a benefit which remained in the second defendant and/or in respect of which the second defendant can be said now to be obliged to pay over to the plaintiff or to account for to the plaintiff. 39 Mr Faulkner fairly and frankly in the course of his submissions conceded that he found it difficult to see how one could describe under the heading "damages", the type of claim which the plaintiff sought to pursue against the second defendant. 40 Notwithstanding the apparent questions said to arise in relation to the mode of operation of the Deed of Assignment of 29 November 1996, it is plain enough that the Deed was a tripartite deed and that it referred specifically to the subject Fixed Price Building Contract. 41 Both parties have been content to present their submissions upon the basis that the issue as to whether or not the subject Deed of Consent ought be rectified to be dated 8 April 1998 as opposed to 29 November 1996, could not be determinative of this motion. 42 I accept, as of substance, the second defendant's submission that the essential elements or components of a claim for unjust enrichment include (a) the existence of a benefit in the defendants hands; (b) which benefit is gained at the plaintiff's expense; (c) the retention of which is for some reason unjust, [that is that some unjust factor justifies restitution]. 43 The second defendant's interest in the property I accept subsisted independently of the plaintiff's. 44 As I have sought to indicate, the plaintiff submits that the owner's benefits under the contract are in the nature of having the builder's performance. The plaintiff's works are said to be a direct and real benefit to the second defendant be reason of the enhancement of the property and its value whilst the Bank was at risk on the mortgage. 45 To my mind, and in those circumstances, the endeavours of the plaintiff to assert a benefit in that the plaintiff is said to have fulfilled its primary promise to carry out the work and that the Bank is said to have obtained benefits which the plaintiff may now seize upon to ground its quantum meruit claim, are misconceived. 46 In those circumstances and for those reasons the subject pleading against the second defendant ought be struck out, subject to any question which may still be raised between the parties as to whether or not the plaintiff seeks to pursue against the second defendant in some fashion presently not known to me, the rectification count, [that is to say, seeks to submit that the second defendant ought be retained as a party for the purpose only of dealing with the rectification count]. 47 Subject then to any submissions which may be made as to the rectification issue, which has not been argued by either party, I am disposed to make the orders sought in the notice of motion, in terms of the primary way in which the second defendant put its case; namely, that the plaintiff's claims against the second defendant should be dismissed. 48 I do think that, in the circumstances, the plaintiff ought be given, an opportunity to indicate whether or not it wishes to make a case, that for some reason presently not known to me, it is entitled to keep the second defendant in the proceedings for the purpose of pressing for an order that the 29 November 1996 deed, which has been referred to in the judgment, should be rectified. [Counsel then addressed] 49 Now having heard from Mr Faulkner that the plaintiff, by its counsel has discussed the matter with the second defendant's leading counsel and has determined that there is no longer point in or application to keep the second defendant in the proceedings, I make the following orders: I order that the plaintiff's claim against the second defendant be dismissed; that the plaintiff pay the second defendant's costs of the proceedings, including costs of the subject motion. I direct that all reserved costs be included in the order now made that the plaintiff pay the second defendant's costs of the proceedings. 50 As far as the first defendant is concerned, the position, which is common ground, is that the first defendant has not sought to participate on the application and, presumably, there is no order of any type apropos the first defendant which now requires to be treated with. I certify that paragraphs 1 -50 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 5 May ex tempore and revised on 26 June 2000 ___________________ Susan Piggott Associate 26 June 2000 Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.