New South Wales Supreme Court CITATION : Bruton Pty Ltd, M. v NSW Land & Housing Corp & Anor [2009] NSWSC 1431 HEARING DATE(S) : 11 December 2009 JUDGMENT DATE : 11 December 2009 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 11 December 2009 DECISION : Interlocutory injunction granted. CATCHWORDS : INTERLOCUTORY INJUNCTION – BUILDING CONTRACT – BANK GUARANTEE – Defendant entitled to call on guarantee if it becomes entitled to exercise rights to security – serious question to be tried on construction of contract and whether Defendant entitled to exercise rights – balance of convenience favours grant of interlocutory injunction. CATEGORY : Procedural and other rulings M. Bruton Pty Ltd (Plaintiff) PARTIES : New South Wales Land and Housing Corporation (First Defendant) St George Bank Limited (Second Defendant) FILE NUMBER(S) : SC 5478/09 COUNSEL : F. Austin (Plaintiff) J. Darvall (First Defendant) SOLICITORS : Malouf Solicitors (Plaintiff) NSW Land & Housing Corp (First Defendant) 5478/09 M. Bruton Pty Ltd v NSW Land & Housing Corporation & Anor JUDGMENT – Ex tempore 11 December, 2009 1 The Plaintiff carries on a business as a building company. On about 13 June 2007 the Plaintiff entered into a building contract with the First Defendant for the construction of a substantial development at Caves Beach. The contract provided a period of some 36 weeks for completion of the building. If no extensions of time were granted, the building ought to have been completed by around 24 June 2008. In fact practical completion of the building was achieved on 30 October 2008. 2 The First Defendant says that there were considerable defects in the building work which were not rectified by the Plaintiff in accordance with the Plaintiff's contractual obligations. The First Defendant also says that the Plaintiff was in breach of the clause requiring completion of construction by a specified time and that it is entitled to liquidated damages for the period between the date of practical completion actually achieved and the date when practical completion ought to have been achieved. 3 The Plaintiff was required by the building contract to provide a bank guarantee as security for its performance of the contract. The bank guarantee was in the sum of $80,000. Clause 5.5 of the contract provided as follows: "If the principal (i.e. the First Defendant) becomes entitled to exercise all or any of his rights under the contract in respect of the security, the principal may convert into money the security that does not consist of money. The principal shall not be liable for any loss occasioned by such a conversion." The First Defendant proposes to call upon the bank security in an amount of some $75,000. 4 The Plaintiff has commenced proceedings by Summons to restrain or prevent the First Defendant from calling upon that guarantee. By this application it seeks an interlocutory injunction restraining the First Defendant from calling upon the guarantee pending resolution on a final basis of the dispute between the parties. 5 The Plaintiff says that the First Defendant is entitled to call upon the guarantee only if it is in fact entitled to exercise rights under the contract for breach of contract. The Plaintiff says that it disputes that the First Defendant is in fact entitled to exercise any rights to call upon the security because the Plaintiff says it is not in breach of any material term of the contract. 6 The issues basically are: – whether there is a serious question to be tried as to whether the Plaintiff is in breach of the contract in any material respect and whether the amount of damages for which the Plaintiff could be liable in respect of such breaches, if any, is such as to entitle the First Defendant to call upon the guarantee; – if a serious question is established, where the balance of convenience lies in the consideration as to whether an interlocutory injunction should be granted. 7 The First Defendant formulated its claim to damages, both liquidated and unliquidated, for breach of contract in a letter to the Plaintiff dated 1 October 2009. In that letter the First Defendant says that it claims a total of $118,496.71 comprised of four basic components. 8 The first is the cost of completing works under the contract in light of the Plaintiff's alleged failure or refusal to complete the contract. The failure or refusal to complete the contract relied upon is an alleged abandonment by the Plaintiff of the contract expressed in a letter to which I will come shortly. The amount claimed for costs of completing the contract is some $32,270. 9 The second component in the damages claim is an amount totalling $23,180 said to be owing in respect of the rectification of additional defects identified during a review and completion of the works. The third component is an amount of $8,320, claimed for contract administration costs. Those costs are said to arise out of the Plaintiff's breach of the contract. Finally, there is a sum of $54,720 claimed for liquidated damages. The liquidated damages are, as I have said, claimed by reason of an alleged failure to achieve practical completion by the time stipulated in the contract after proper allowance of all extensions of time claimed by the Plaintiff. 10 Did the Plaintiff abandon the contract in the manner claimed by the First Defendant such as to warrant the First Defendant from proceeding to arrange completion of the contract work itself, charging the Plaintiff its costs for doing so? 11 The First Defendant relies upon only two letters in this regard. One is a letter from it dated 22 December 2008 and the second is a facsimile in response from the Plaintiff dated 29 December 2008. In the First Defendant's letter of 22 December 2008, the First Defendant lists a number (not a large number) of defects in the construction and concludes: "At the meeting at our office, you said that you would still honour your obligations under the contract for the defects liability period yet it appears that you have not returned to site since the handover. As you would be aware, the lawns are supposed to be mowed every 10 days during the 26 [sic] defects liability period. Unless I hear from you regarding your intentions, I will have no other choice but to have the works carried out by others and fund the cost of this work through the balance in hand and or the bank guarantee." 12 The Plaintiff's response of 29 December 2008 was as follows: "thanks for your letter regarding items of work requiring attention on the above contract. Under the circumstances, I think that it would be best for you to arrange to have these items attended to. I will leave it to you to ensure the costs are kept to a minimum." 13 Mr Bruton in his evidence says that he did not intend by the letter of 29 December 2008 to give notice that the Plaintiff was refusing to perform any further obligations under the building contract. He says that all he was intending to do was authorise the First Defendant to arrange for its own contractors to carry out the rectification work and to debit the Plaintiff's account in that regard. Of course, what Mr Bruton himself says was his intention in giving the letter is not to the point. The question is what does Mr Bruton's letter, properly construed and read in its context, indicate to a reasonable reader? 14 I must say that, at least on a prima facie view, I would be unable to conclude that Mr Bruton's letter could reasonably be read as an abandonment of the building contract. One reasonable reading of the letter is precisely the intention attributed to it by Mr Bruton himself. It would be a serious matter for a builder to give formal notice that it was refusing to carry out any further work at all under the building contract. It is sufficient for me to say that it is seriously arguable that this letter did not constitute formal abandonment by the Plaintiff of the building contract. 15 The second major issue is whether the Plaintiff was in breach of its obligations to complete the building by a certain specified time. The Plaintiff's evidence is that it applied for a number of extensions of time under the contract founded upon delays it experienced, mostly by reason of rain, during the construction period. Only one of such extensions of time was granted. The Plaintiff says that all should have been granted and if all had been granted then practical completion was achieved within the time permitted by the contract so that the Plaintiff is not liable for any liquidated damages. 16 The response of the First Defendant is that, even if the Plaintiff is correct in saying that all of its extensions of time ought to have been granted, it is now barred from making such an assertion in this case because the contract limits the time in which the Plaintiff may take issue with a refusal or failure on the part of the First Defendant to deal properly with extension of time claims. 17 In this regard Mr Darvall of Counsel, who appears for the First Defendant, relies upon clause 45.1(a) of the contract. That clause, in brief, provides that if the Plaintiff is dissatisfied with a failure on the part of the First Defendant to deal with a matter such as a claim for an extension of time, then the Plaintiff must within fourteen days require the dispute to be referred to the superintendent, as defined by the contract. 18 There is a problem with applying this clause to the facts of the case for two reasons. The first is that the fourteen day period is specified to run "after the determination or direction is given to the contractor" and what is complained of by the Plaintiff is that there was no determination or direction at all given to the contractor in respect of these extension of time claims. 19 Further, insofar as the clause also provides that the Plaintiff is to submit the dispute or difference to the arbitrator "not later than fourteen days after the dispute or difference arises" the Plaintiff says that no dispute or difference did in fact arise about the First Defendant's refusal to extend the time for completion because a representation was made on behalf of the First Defendant to the Plaintiff to the effect that all extension of time claims would be allowed. 20 Mr Bruton gives evidence that he repeatedly inquired of the First Defendant what was happening to the Plaintiff's claims for extension of time and in the course of these repeated inquiries was informed not to worry about the matter and that all extensions of time would be eventually granted. 21 There is no direct evidence to the contrary but of course that allegation is disputed by the First Defendant. There is therefore an issue for trial, the issue being firstly, whether there could be some sort of estoppel arising preventing the First Defendant from relying upon the time bar provisions of clause 45.1. The second issue as a matter of construction being whether in those circumstances, and if the Plaintiff's evidence is accepted, that there was no dispute in the sense triggering the time bar running under clause 45.1. 22 It is sufficient to say that in my opinion there is a real question to be tried as to whether the Plaintiff's evidence ought to be accepted and, if it is accepted, whether there was a breach of the Plaintiff's covenant for practical completion because the extensions of time claimed ought to have been allowed. If those issues are determined in the Plaintiff's favour, then the First Defendant's claim for liquidated damages of some $54,000 disappears. 23 The third issue is the extent and value of rectification work for which the Plaintiff may be liable. As I have said, the First Defendant wrote to the Plaintiff on 22 December 2008 complaining of some specific items of work which needed to be done and the first Plaintiff authorised the First Defendant to carry out that work at its expense. The Plaintiff concedes that the work specified in that letter was carried out and that a proper charge for that work is some $23,000. However, the Plaintiff disputes that any of the other rectification work claimed by the First Defendant is properly for its account. It says, for example, that a considerable number of items of additional work claimed by the First Defendant were not properly defects or were not for the Plaintiff to rectify. 24 I think it is fair to say that, apart from the sum of $23,000 which the Plaintiff concedes it owes the First Defendant, there is a question to be tried as to whether the additional works carried out by the First Defendant were within the terms of the contract and were for the Plaintiff's account. 25 If all assertions and submissions of the Plaintiff were upheld on a final hearing, then the result would be that the Plaintiff would be indebted to the First Defendant in the sum of some $23,000, which would be offset against the First Defendant's debt of some $43,000 remaining due to the Plaintiff under the contract. The First Defendant has withheld this amount apparently on the basis that it was entitled to do so by reason of a breach on the part of the Plaintiff in procuring work to be carried out by a subcontractor not authorised by the First Defendant, the subcontractor being a company controlled by the son of the principal of the Plaintiff. 26 Mr Darvall does not say that the sum of $43,000 may be retained by the First Defendant as damages for that breach but he says that, if the Plaintiff is found to be indebted to the First Defendant for any amount for defects or other work or damages, that indebtedness may be offset against the sum of $43,000 otherwise due to the Plaintiff under the contract. 27 As I have said, if the Plaintiff's assertions are upheld in their entirety at a final hearing, the Plaintiff will be indebted to the First Defendant for no more than some $23,000. When this amount is offset against the sum of some $43,000 which would otherwise be payable to the Plaintiff under the contract, the result would be, not that the Plaintiff owes money to the First Defendant which could be the subject of a call by the First Defendant under the guarantee, but rather that the First Defendant owes some $20,000 odd to the Plaintiff. 28 In summary, I am of the view that the Plaintiff has succeeded in establishing that there is a serious question as to whether the Plaintiff is, on balance, indebted to the First Defendant in any amount under the building contract and accordingly, there is a serious question as to whether the First Defendant is entitled to call upon the guarantee in accordance with Clause 5.5 of the building contract. 29 As to the balance of convenience, the Plaintiff has given evidence that if the guarantee is called upon it will result in severe financial difficulties. The Plaintiff says that it will be in breach of its borrowing covenants with its bank and that several other projects in which it is engaged and which have finance from the bank will be imperilled. 30 The First Defendant has given no evidence whatsoever of any hardship if the injunction were granted on a temporary basis. It is difficult to see how the First Defendant could suffer prejudice if the interim injunction is granted because the security of the guarantee would remain. All that is suspended pending the final resolution of the proceedings is the ability of the First Defendant to call upon it. If at the end of the proceedings the First Defendant is found entitled to call upon the security, then the security will be available to it without diminution. In those circumstances the balance of convenience weighs entirely in favour of the Plaintiff. 31 I note that the Plaintiff by its counsel gives the usual undertaking as to damages. 32 I order that until further order the First Defendant its servants or agents be restrained from proceeding to demand, draw upon or recover from the Second Defendant, St George Bank Limited, any monies secured by a bank guarantee given on behalf of the Plaintiff and executed on or about 9 August 2007. 33 The Plaintiff seeks an order for the costs of this motion. I think that the costs of the motion are very much tied up with the substantial merits of the case. It is really a building case between the parties. The First Defendant did not oppose the motion in any way deserving of censure. I think that the proper order is that the costs of this motion be costs in the cause. – oOo – 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.