Supreme Court New South Wales Medium Neutral Citation: Southern Cross Constructions (NSW) Pty Limited (Administrators Appointed) v Bucasia Pty Limited [2012] NSWSC 1419 Hearing dates: 22 November 2012 Decision date: 22 November 2012 Jurisdiction: Equity Division - Technology and Construction List Before: Stevenson J Decision: Separate question answered "Yes" Catchwords: BUILDING AND CONSTRUCTION -recourse to security CONTRACTS - contract purportedly terminated - accrued rights Cases Cited: Kennedy Taylor (Vic) Pty Ltd v Baulderstone Hornibrook Pty Ltd [2000] VSC 43 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 Pearson Bridge (NSW) Pty Limited v State Rail Authority of New South Wales [1982] 1 Aust Construction LR 81 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 Texts Cited: Seddon, Bigwood & Ellinghaus, Cheshire & Fifoot, Law of Contract, 10th ed (2012) Category: Separate question Parties: Southern Cross Constructions (NSW) Pty Limited (Administrators Appointed) ACN 083 223 107 (plaintiff) Bucasia Pty Limited ACN 003 634 842 (defendant) Representation: Counsel: M Orlov with D Hand (plaintiff) F G Kalyk (defendant) Solicitors: Yates Beaggi Lawyers (plaintiff) Hunt & Hunt (defendant) File Number(s): SC 2012/340056 Publication restriction: Nil Judgment Introduction 1This is the determination of a separate question relating to the proper construction of a contract ("the Contract") made in about late 2010 between the plaintiff, Southern Cross Constructions (NSW) Pty Limited ("Southern Cross") and the defendant, Bucasia Pty Limited ("Bucasia"). 2Pursuant to the Contract, Southern Cross undertook to design and construct a mixed-use development in Eastwood. 3The Contract comprised a number of documents including a "Formal Instrument of Agreement" (which specified a "Contract Sum" of $26,296,634), AS4902-2000 General Conditions of Contract for Design and Construct ("the General Conditions") and various annexures including a document called annexure "Part E" which varied many of the provisions in the General Conditions. 4The Contract obliged Southern Cross to provide "contractor's security" in the form of two unconditional insurance bonds each of 2.5 per cent of the Contract sum. 5Clause 5.2 of the Contract provided that Bucasia could have "recourse" to that security in the following circumstances: - "5.2 Recourse The Principal may have recourse to Security after first giving not less than 5 Business Days [sic] notice to the Contractor where: a) the Principal has become entitled to exercise a right or power under the Contract in respect of the Security; b) the Contractor is in default or breach of the Contract; c) the Contractor has repudiated or given notice of intention to repudiate the Contract; d) the Contractor has failed to pay the Principal amount certified as owing by the Contractor to the Principal in accordance with clause 37.2A; or e) the Contractor is otherwise indebted to the Principal and the Principal remains unpaid after 5 business days has [sic] elapsed since the Principal issued an invoice to the Contractor seeking payment of the debt." 6On or about 5 April 2011, Southern Cross provided security in the form of unconditional undertakings, identified as Bond No. 201101-0047 and Bond No. 201101-0049, each in the amount of $723,157.44. 7Southern Cross alleges that on 15 October 2012, Bucasia, by its officers and agents, entered Southern Cross's site office without permission, forcibly removed a large number of Southern Cross's files and documents comprising project records, changed the locks to the site office, threatened Southern Cross's staff and informed those present that it was terminating the Contract. 8Southern Cross claims that Bucasia thereby evinced an intention to no longer be bound by the Contract and that Southern Cross accepted Bucasia's repudiation of the Contract by: - (a)between 15 and 17 October 2012, ceasing work other than to make the site safe, closing its site office and off-hiring plant and equipment used on the project; or (b)alternatively, by notice in writing on 23 October 2012 in which it purported to terminate the Contract. 9On 24 October 2012, Bucasia issued notice of its intention to call on the security. 10Bucasia has not yet filed a Response to Southern Cross's List Statement. However Mr Kalyk, who appears for Bucasia, informed me that Bucasia disputes that it has repudiated the Contract and that Southern Cross has effectively terminated the Contract. Resolution of that dispute must await another day. 11In those circumstances, on 16 November 2012, and with the consent of the parties, Sackar J ordered the separate determination of an issue concerning the proper construction of the Contract. 12Before me it was agreed, and I ordered, that the separate question be reformulated as follows: - "Whether, on the proper construction of the Contract, and assuming Southern Cross terminated the Contract on or before 23 October 2012, Bucasia was entitled to issue a notice of intention to have recourse to security under clause 5.2 of the Contract." 13Southern Cross accepts that, prior to its purported termination of the Contract on 23 October 2012, it was "in default or breach of the Contract" within the meaning of clause 5.2(b) of the General Conditions. The issue 14The separate question raises for consideration the nature of Bucasia's accrued rights under the Contract assuming, as the parties do for the purpose of the determination of the separate question, that Southern Cross was entitled to, and did, terminate the Contract. 15Where a contract is terminated, the parties are not divested of such rights as they had already "unconditionally acquired": per Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. Such rights are often referred to as "accrued rights": e.g. Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [217] per Hodgson JA (Allsop P and Macfarlan JA concurring at [1] and [389] respectively). See generally Seddon, Bigwood & Ellinghaus Cheshire & Fifoot, Law of Contract 10th Ed (2012) at [21.38]. 16The principle is that where one party to a contract terminates the contract for breach, the contract is not rescinded as from the beginning. Both parties are discharged from further performance of their obligations under the contract; but accrued rights are preserved. 17Bucasia's right under clause 5.2 accrued when any one of the events referred to in clauses 5.2 (a) to (e) occurred. 18Southern Cross accepts that it was "in default or breach" of the Contract prior to its purported termination of the Contract, and thus that the event referred to in clause 5.2(b) occurred prior to the purported termination. 19Mr Orlov, who appeared with Mr Hand for Southern Cross, submitted that, on the proper construction of clause 5.2, the right to have recourse to security only accrued when each of the following had occurred: - (a) one of the events in clauses 5.2 (a) to (e); and (b) the 5 business days' notice contemplated by clause 5.2 had been given and expired. 20Thus, in Mr Orlov's submission, Bucasia's right to have recourse to the security had not accrued at the date of purported termination (23 October 2012) because it had not then served the requisite notice and, necessarily, such notice had not expired. 21I do not accept this submission. 22In my opinion, the nature of Bucasia's right was to have to recourse to the security as soon any of the events specified in clauses 5.2 (a) to (e) occurred "after" giving the requisite notice. But the giving of the notice was not a condition precedent to the accrual of the right. It was merely the manner in which the right was to be exercised. And the right accrued, in my opinion, as soon as any of the events specified in clauses 5.2 (a) to (e) occurred. 23The words used by the parties in clause 5.2 make clear to me that their intention was that the words "after first giving not less than 5 Business Days [sic] notice to [Southern Cross]" were intended to do no more than provide that Bucasia could not exercise that accrued right until the expiry of the notice. 24There are many reasons why the parties might have made this provision. One might be to allow Southern Cross time to organise its affairs (whether with any third party provider of the security or otherwise) in readiness for Bucasia's recourse to the security. Another might be to allow Southern Cross an opportunity to challenge Bucasia's recourse to the security on some basis arising from their dealings together. 25The effect of Mr Orlov's submission was that the giving of the requisite notice was a condition precedent to the accrual of the right. In my opinion, the words used by the parties do not permit that conclusion, which involves reading the word "after" in clause 5.2 as if it read "if and only if", or something to that effect. If the parties intended the Contract to have the effect for which Mr Orlov contends, they could easily have so provided. 26There is nothing in the Contract to suggest that the parties intended Bucasia would lose an accrued right by reason of itself having repudiated the Contract, entitling Southern Cross to terminate (as the parties have asked me to assume for the purpose of answering the separate question). Mr Orlov made no such submission. 27Mr Kalyk submitted that even if Bucasia's right to recourse to the security had not accrued at the date of Southern Cross's purported termination, on the proper construction of the Contract the parties intended that such right would survive, and be exercisable by Bucasia after termination. 28Clauses in building contracts which provided that the party in the position of Bucasia was entitled to call on security when it became "entitled" to exercise rights or recover moneys have been held to survive termination of the contract: e.g. Pearson Bridge (NSW) Pty Limited v State Rail Authority of New South Wales [1982] 1 Aust Construction LR 81 per Yeldham J at 87, and Kennedy Taylor (Vic) Pty Ltd v Baulderstone Hornibrook Pty Ltd [2000] VSC 43 per Beach J at [25]. 29In Pearson Bridge, Yeldham J said at 17: - "In my opinion a clause such as cl 5.5 [which provided that the party in Bucasia's position could call on the security if he became "entitled to exercise all or any of his rights under the Contract"], concerned as it is with the provision, retention and disposal of security, is in a similar category to clauses providing for arbitration, forum clauses, and the like so far as the effect of termination of the contract by rescission for breach, or acceptance of repudiation is concerned. The clause might be described as one dealing with secondary obligations within the analysis of Lord Diplock in Photo Production Limited v Securicor Transport Limited (1980) AC 827 at p848-p850. As a matter of construction, I am of the view that cl5.5 envisages a post-rescission state of affairs and is in no way abrogated by termination of the contract, whether that termination came about as the plaintiff alleges, or as the defendant claims in the pleadings". (Emphasis added) 30In Kennedy Taylor, Beach J, dealing with a similar clause, agreed with these observations (at [24]) and concluded (at [25]) that: - "...a clause relating to security such as clause 5 in the present subcontract is not abrogated by termination of the contract". 31See also the discussion by the Privy Council of secondary obligations which survive termination (albeit in a different context) in Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (1980) 144 CLR 300 at 305-307. 32If (as I am assuming for the purpose of the separate question) the Contract was terminated on 23 October 2012, the obligations of the parties to perform it have ceased. But Bucasia, by seeking recourse to the security, is not calling on Southern Cross to perform any obligation. It is seeking to exercise a right it had under the Contract. If I am wrong in my conclusion that such right had accrued at the date of termination, I would conclude that such right is a "secondary right" of the kind referred to in the above authorities, which survived termination. 33Either way, in my opinion, the answer to the separate question is "Yes". ********** 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. Decision last updated: 26 November 2012