New South Wales Supreme Court CITATION : Hightrade Construction v Full Sea International [2004] NSWSC 888 HEARING DATE(S) : 21 September 2004 JUDGMENT DATE : 21 September 2004 JURISDICTION: Equity JUDGMENT OF : Campbell J DECISION : Builder entitled to retention monies and return of bank guarantee CATCHWORDS : CONTRACTS - BUILDING ENGINEERING AND RELATED CONTRACTS - remuneration - work required by contract completed, but no architect available to certify entitlement to retention money and bank guarantee - proprietor no longer contactable - entitlement of builder to retention money and banker's guarantee LEGISLATION CITED : Home Building Act 1989 Hightrade Construction Pty Limited - Plaintiff Full Sea International Limited - First Defendant PARTIES : Jade Gold Properties Limited - Second Defendant Alex Ostermayer (and the persons named in the Schedule trading as Colin Biggers & Paisley) - Third Defendant Simon Chan & Associates Pty Limited - Fourth Defendant FILE NUMBER(S) : SC 3925/04 COUNSEL : D R Pritchard - Plaintiff Bartier Perry - Plaintiff SOLICITORS : No Appearance - First and Second Defendants Submitting Appearance - Third Defendant Submitting Appearance - Fourth Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST CAMPBELL J TUESDAY 21 SEPTEMBER 2004 3925/04 HIGHTRADE CONSTRUCTION PTY LIMITED v FULL SEA INTERNATIONAL LIMITED & ORS JUDGMENT – Ex Tempore 1 HIS HONOUR: The plaintiff in this case is a builder. The first and second defendants are companies incorporated in the British Virgin Islands and registered in Australia. They entered into a written contract with the plaintiff, whereby the plaintiff agreed to construct a multi-storey residential building and associated townhouses at 98 Chandos Street, Ashfield. That contract is one made on 8 May 2000. It named the fourth defendant, Simon Chan & Associates Pty Limited, as the architect for the purposes of that contract. The third defendant in the proceedings is the firm of Colin Biggers & Paisley, solicitors. That firm had at one time acted for the first and second defendants, but no longer does so. 2 The building contract was one which had a familiar structure, requiring there to be an architect, and providing for the architect to certify periodical progress payments. There was an obligation on the proprietor, under cl 5.07, that if at any time the architect for any reason ceased to act then the proprietor would replace him. 3 The project at Ashfield has been complete for some time. By the present application, the plaintiff seeks orders which will entitle it to receive an amount of $266,750 presently held by the third defendant, which is a retention sum kept under the contract, and seeks the return of a banker's guarantee which was provided, to form the function of an extra retention sum, and which is in the sum of $242,500. 4 There is provision in the contract for not only the making of progress claims, but also for the provision of a final certificate, and the making of a final payment. This final certificate is one which the architect is required to issue. The circumstances in which the architect is required to issue it are set out in detail in the contract, but, broadly, it is a certificate to be issued when everything required to be done under the contract has been done. There is provision in the contract that, upon the issue of that final certificate, any amount contained in a joint account which is held as retention money can be released, and any bank guarantee which has been provided shall likewise be released. 5 The architect issued a progress certificate on 14 November 2001, which certified that work to the value of the entire contract sum, namely $9.7 million, had been done. It certified that a particular payment, in the order of $660,000, was due, which would make up the entire amount which was due to be paid to the builder. However, that certificate recognised that an amount of $242,500 due to the builder was still to be retained. 6 There had, at one time, been a bank guarantee issued by Westpac in favour of the first two defendants and their financier, relating to the sum of $490,000. 7 As a consequence of proceedings in this court, orders were made on 3 April 2003 requiring the first two defendants in these proceedings to deliver to the plaintiff the bank guarantee that I have just referred to in exchange for a banker's undertaking dated 27 March 2003 issued by Westpac. That replacement banker's guarantee is issued in favour of the first two defendants alone, and is in the sum of $242,500. It is that guarantee that Colin Biggers & Paisley now holds. 8 The orders of 3 April 2003 also required that the defendants pay the sum of $266,750 (made up of the $242,500 which the first and second defendants were entitled to retain, plus 10% GST) into the trust account of Colin Biggers & Paisley, "to be held in the joint names of the plaintiff and the defendants and to be dealt with in accordance with the terms of the building contract". There was also a Mareva order restraining the first and second defendants from disposing of their assets. 9 By April 2003, it had become apparent that the first and second defendants were not proposing to retain an active presence in Australia. 10 Since April 2003, the firm of accountants who formerly provided the registered office for the first and second defendants have ceased to provide that service. On 11 March 2004 Mr Chan, who is the prime person involved in the fourth defendant, stated that he was no longer engaged by the defendants in relation to the building project. Colin Biggers & Paisley have, since October 2003, been in a situation where they have no instructions from the first and second defendant. There is no resident director or agent of the first and second defendants. 11 There has been some dispute about whether there are defects in the building work that has been carried out. The plaintiff has dealt with that by dealing with the owners' corporation of the strata plan of the building development. A deed of release was entered into between the plaintiff and that owners' corporation on 7 November 2003, whereby a list of defects which the plaintiff would remedy was agreed upon, and it was agreed that upon the expert appointed by the owners' corporation certifying that those works had been completed to a satisfactory standard, the plaintiff would be released from any claim for breach of warranties implied into the building contract by the Home Building Act 1989. 12 That rectification of defects has now been carried out, and the expert appointed by the owners' corporation has, on 12 May 2004, certified that he is satisfied with the remediation works. 13 On that date, the plaintiff sought to make a final claim under cl 11.1 of the building contract, requesting the release of the cash retention and return of the bank guarantee. That final claim was served on the architect, at the place which had once been the registered office of the first and second defendants, and also at the address which was stated as the address of the first and second defendants in the building contract. 14 Those attempts to obtain a final certificate were completely fruitless. Mr Chan reiterated that he was no longer engaged in relation to the project, and the attempts to serve the first and second defendants produced no response at all. For all practical purposes, they seem to have fled the jurisdiction. 15 These proceedings are ones concerning which Bergin J made an order for substituted service on the first and second defendants. I am satisfied that her Honour's order has been complied with, and that, independently of the terms of that order, all reasonable attempts have been made to bring these proceedings to the attention of the first and second defendants. The first and second defendants have not appeared today. The third and fourth defendants have each filed an appearance, in which they submit to any order of the court, save as to costs. They have not attended court today. 16 The trigger provided by the contract for the release of the security, and the release of rights in the bank guarantee, is the provision of a final certificate. Notwithstanding the significant breach of the contract that has been committed by the first and second defendants in failing to appoint a replacement architect, the plaintiff has elected to keep the contract on foot. The express terms of the contract do not deal with the situation of how the retention money, and the bank guarantee, should be dealt with in circumstances where there is no final certificate. It is because of the breach of contract on the part of the first and second defendants that a final certificate cannot be provided. 17 In my view, the first and second defendants have by their conduct waived any entitlement to a final certificate before any entitlement on the part of the plaintiff to the retention money, and the bank guarantee, arises. 18 Another route to the conclusion, which I also adopt, is that the plaintiff is entitled to the issue of a final certificate in accordance with cl 11.04 of the contract, and in determining rights under the contract the court will regard as done, that which ought to be done. 19 The contract makes provision, in cl 11.11, that should the architect fail to issue to the builder a final certificate within fifteen days of one being applied for, then the builder is entitled to interest at the rate of eight per cent per annum from the expiry of those fifteen days. In my view, the plaintiff is entitled to that interest, calculated from 28 May 2004. 20 The total amount of interest accrued up to today, on the amount of $266,750, is $6,821.80. 21 However, in circumstances where there is no proof of the amount of interest which has accrued on the money in the trust account, and therefore that the plaintiff cannot establish whether there is any shortfall between its contractual entitlement to interest at eight per cent and the amount of interest which has actually been earned, the plaintiff does not press its claim for a judgment of a money sum of interest in relation to that money. It contents itself with a claim for an order that it receive the amount in the trust account in specie, together with any interest actually earned on that money. 22 The plaintiff has also established, in my view, its entitlement to a release of the bank guarantee. (1) I declare that the plaintiff is entitled to the return of the bank guarantee provided in favour of the first and second defendants in the sum of $242,500 dated 27 March 2003, and that the first and second defendants shall be taken to have released their interests therein. (2) I order that the third defendant release to the plaintiff the retention monies held in the trust account in the amount of $266,750 together with any interest earned. (3) I order that the third defendant deliver to the plaintiff the original bank guarantee provided in favour of the first and second defendants in the sum of $242,500 dated 27 March 2003. (4) I order the first and second defendants to pay the plaintiff's costs of these proceedings. The exhibits may be returned. ********** Last Modified: 09/29/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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