Port Macquarie-Hastings Council v Diveva Pty Limited ABN 34 003 779 815 trading as Mid Coast Road Services

PAYNE JA: The present proceedings came before me as the Court of Appeal duty judge in the week commencing 7 January 2017. The case had been determined by Hall J in the Common Law Division of the Supreme Court on 13 December 2016. On 15 December 2016, his Honour granted a stay of proceedings pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 51.44(1) for the period of 28 days. That was all his Honour was asked to do.

On 11 January 2017, the applicant by notice of motion sought to move the Court of Appeal to continue the stay. The notice of motion was actually filed with an incorrect file number. The orders sought in that notice of motion were as follows:

There was a notice of intention to appeal filed on 24 December 2016, however no notice of appeal had been filed. Indeed, at the date of hearing the notice of motion, the notice of appeal had still not been filed.

The consequence of this failure to file a notice of appeal is that the Court of Appeal was without jurisdiction. It is clear that the filing of a notice of intention to appeal does not give the Court of Appeal jurisdiction: UCPR r 51.9(3); see Crowe-Maxwell v Frost [2016] NSWCA 46 at [12] per Beazley P (Macfarlan and Gleeson JJA agreeing). Nonetheless, sitting as a Supreme Court judge I had power to consider, in limited circumstances, whether to continue the stay under UCPR r 51.44(1) granted by Hall J. On 30 January 2017, the notice of appeal was filed, commencing Court of Appeal proceedings. Given the absence of prejudice to any party I will treat the present motion as being one filed in the Court of Appeal proceedings.

When the matter came before me on 12 January 2017, the respondent to the motion was not in a position to proceed. This was understandable given that the notice of motion and supporting evidence had only been served the day before, following a direction to do so from the Court. The applicant in the motion erroneously sought to rely upon a “self-executing” letter served on the respondent on Christmas Eve (a Saturday) which it was apparently thought absolved the applicant from the responsibility of serving material on the respondent to the motion. No basis was identified for seeking order 1 of the notice of motion that “service of this motion and any supporting affidavit be dispensed with”. Very special circumstances would need to be shown before such an order would ever be made. No attempt was made by the applicant to explain how it could ever have been entitled to such an order in this case. This is a matter I will return to in the determination of the costs of the motion.

On 12 January 2017 I made the following orders:

Those orders were not complied with by either party. In the first part, the applicant on the motion purported to electronically file documents in the Court of Appeal. As I have explained there is no proceeding before the Court of Appeal unless and until a notice of appeal is filed. The respondent served but did not file evidence from their managing director within the time frame I had prescribed.

The applicant then filed a lengthy expert report from Mr Ross, an expert accountant dated 25 January 2017. That report was not strictly in reply to the evidence which had been filed. I made clear at the directions hearing on 12 January that this approach was to be deprecated. Further, the respondent filed, in response, an affidavit of Sandra Kafantaris sworn 25 January 2017. The evidence before me was completed with the applicant filing a further report of Mr Ross dated 27 January 2017, the day the matter was fixed for hearing.

Despite these considerable breaches of procedural orders I had made, the parties did not object to the tender of evidence and each of the following affidavits and reports became evidence on the application:

Written submissions were provided to the Court, by the respondent on 25 January 2017 and by the applicant on 27 January 2017.

The motion was heard by me on 27 January 2017, after which I reserved my decision and made the following orders:

At that time I noted the undertaking of Counsel for the applicant on the motion, that the notice of appeal would be filed no later than 4pm Monday 30 January 2017. As noted above, that occurred.

In a decision dated 13 December 2016 his Honour determined the claim by Diveva Pty Ltd (Diveva) against Port Macquarie-Hastings Council and made an award of damages for breach of contract ultimately in the sum of $247,443 comprising $217,065 plus pre-judgment interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) in the sum of $30,383.

His Honour in granting the stay said:

Diveva is a civil construction company operating on the mid-north coast of New South Wales. In 2005, 2008 and 2011 Diveva was the successful tenderer for the supply and laying of asphalt concrete to Port Macquarie-Hastings Council.

The relevant contract at issue in the present proceedings was entered into between Diveva and the Council in about August 2011. Under that contract Diveva contracted to supply, deliver and lay asphalt for a period of two years with a further one-year option agreement.

In about August 2011 Diveva undertook certain asphalt works on Ocean Drive, Lake Cathie. In the proceedings it was common ground the work was done and that Diveva was not responsible for the failure of those works.

In May 2012 the Council excavated and reconstructed the area on Ocean Drive. Diveva laid asphalt in late July 2012. In late 2012 Ocean Drive again showed signs of failure.

There was a dispute between the parties as to the cause of the failure on Ocean Drive following the 2012 works. Specifically the issue is whether one component of the works was in compliance with specifications.

In March 2013 the Council advised Diveva that it had reviewed the current tender contract specification and determined that the option to extend the agreement would not be exercised and a new tender would be advertised in the coming weeks.

On 4 April 2013 Diveva gave notice that it exercised the option to extend the 2011 agreement for a further 12 months. On the same date the Council asserted that the option to extend the contract had to be by mutual agreement. The negotiations continued. The Council invited tenderers for the period after 31 July 2013 identifying different specifications to be included in further contracts.

While the initial term of the 2011 agreement was extended to 31 July 2013 no further work was offered to Diveva by the Council under the 2011 agreement after about 27 May 2013.

The issues in the proceedings were first whether the option in the 2011 agreement was exercisable unilaterally by Diveva and, secondly, assuming that the option was exercisable by Diveva, whether a term ought to be implied into the 2011 agreement to give it efficacy to the effect that the option was not exercisable if Diveva was in breach of the agreement at the time of the exercise. The third issue was the amount of damages, if any, to which Diveva was entitled to if it was successful in these proceedings.

As to the first issue, Hall J determined that on its proper construction the 2011 agreement conferred a unilateral option upon Diveva to extend the agreement for a further 12 month period.

That conclusion was essentially based on the text of the provision and the use of the word “available”. So far as context was concerned Hall J found that an option of its nature was consistent with an entitlement granted by the Council and available to the successful tenderer: at [91]. His Honour found that the agreement, taken as a whole, favoured the construction for which Diveva contended. It would have been open to the Council simply to have said that the option could only be exercised by the Council. It did not do this.

As to the second issue, whether a term should be implied in the 2011 agreement, Hall J found that the onus of proving that the term should be implied into the agreement rested upon the Council and that the principles in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 for implied contractual terms tended against implication of such a term in this case. That was because such a term would not operate reasonably or equitably between the parties and it was not necessary to give business efficacy to the agreement.

His Honour determined, assuming a term was implied, that in any event Diveva had not breached the 2011 contract. The expert evidence was effectively unchallenged. There was no contract specification requiring Diveva to undertake testing for in situ voids. The Council was in error in taking a contrary view. Accordingly there is no basis for finding a breach of an express or implied term in the 2011 agreement by the plaintiff even if one had been implied.

So far as the third issue, damages, was concerned, the primary judge was faced with competing expert evidence. The experts prepared a model which was the subject of a joint experts report. The critical difference between the experts was that the expert for the Council, Mr Ross, was of the view that the damages to be awarded approached zero. The primary judge accepted that it was reasonable and appropriate to estimate revenue that Diveva would have received in the option period as including revenue beyond the tender works. His Honour concluded that so far as the gross margin was concerned, that despite there being a general period of decline, the fact was that Diveva achieved a gross margin under the 2011 agreement in the initial 12 months of the contract in the order of 16%. His Honour preferred Diveva’s expert Mr Mullins’ evidence and said it provided a rational basis for finding loss. Accordingly his Honour determined that judgment for Diveva in the sum of $247,443 should be entered.

The leading authorities - Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 and Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 - provide that the Court must weigh a number of factors when considering a stay application, including:

The applicant highlighted Campbell JA’s reference, at [68], in Woolworths Ltd v Strong (No 2) (2011) 80 NSWLR 445; [2011] NSWCA 72, to the importance of the “usual practice” of staying judgments pending appeal where there is a risk that the plaintiff will be unable to repay the money without difficulty or delay if the appeal were to succeed. The applicant submitted that ordinarily it is appropriate to consider first whether the appeal raises a serious question to be tried, in the sense of arguable grounds, and, secondly, if so, where the balance of convenience lies: see Kalifair at [18] and Vaughan v Dawson [2008] NSWCA 169 at [17].

The respondent submitted that it was entitled to the fruits of its judgment. The overriding principle when determining a stay is to ask what the interests of justice require: New South Wales Bar Association v Stevens [2003] NSWCA 95 at [83] per Spigelman CJ (Meagher and Sheller JJA agreeing). The respondent emphasised that a stay pending an appeal is not a matter of course and pointed to Hickey v Land Enviro Corp Pty Ltd [2014] NSWSC 472, where Harrison J stated:

The applicant relies upon expert accounting reports that call into question the credibility and accuracy of the respondent’s balance sheets and valuations. The reports conclude that the respondent’s financial position is precarious and there is no “reliable information which suggests that Diveva will make substantial trading profits in the near future”. The applicant also relies upon Construction Certificates granted by the Port Macquarie-Hastings Council, annexed to the affidavit evidence of its solicitor. These Certificates are said to cast doubt on the respondent’s expected future trading.

The respondent, in opposing the application, relies upon evidence of its Managing Director as to its financial position, the sale of part of its business and its current and future trading. The respondent also relies upon evidence of its Accounts Manager and its Balance Sheet as at 25 January 2017, which show a figure for net assets of approximately five times the sum here at issue.

It is tolerably clear to me that the applicant on the motion has an arguable case on appeal. While I was not provided with the contract in issue, I have read Hall J’s decision of 13 December 2016. When his Honour granted the stay he commented that “What I specifically have in mind is the issues in the proceedings, including the construction of the option issue. It seems to me that is not unreasonable to ask for a stay”. His Honour accepted that the applicant’s construction was arguable. Having read the decision, I am content to proceed on the same basis.

The reports of Mr Ross contain high level conclusions that do not, in my view, establish that the financial difficulties which the applicant asserts Diveva is experiencing are either immediate or dire. The balance sheets annexed to Ms Kafantaris’ affidavit show that, prima facie, Diveva has net assets well in excess of the judgment amount.

Nevertheless, the financial position of Diveva Pty Ltd was contested at trial and the subject of competing expert evidence. Reluctantly, I have come to the conclusion that there is some risk that the judgement sum may not be able to be repaid and it is appropriate to approach the case on the hypothesis that the evidence of Mr Ross, which was rejected by the primary judge, might be accepted on appeal.

My reasons for reaching this conclusion are as follows. Diveva’s financial position contains the following risks and potential uncertainties:

I consider that the balance of convenience favours the making of orders granting the stay, coupled with orders expediting the appeal. The Court has availability to hear the appeal in the last week of February 2017. If the appeal could not have been heard expeditiously, the balance of convenience may have required a different result.

I note that as a term of any stay the Council has agreed to pay the sum of $247,443 plus post judgment interest into Court and agreed to the appeal being significantly expedited.

Ordinarily, the costs of stay applications of the present kind become the costs of both parties in the appeal. However, the approach taken in this matter has not been ordinary. The bulk of costs in this application were incurred prior to there even being a case in the Court of Appeal, which only commenced with the filing of the notice of appeal on 30 January 2017.

The notice of intention to appeal was only served on 24 December 2016, Christmas Eve and a Saturday. The letter effecting service requested that the respondent not enforce judgment, and purported to excuse the applicant from the requirements of the UCPR in the event it made an application for an extension of the stay. When such an application was made, it was purportedly filed in the Court of Appeal, despite there being no appeal proceedings on foot. The evidence on the motion was not served on Diveva until the day before the hearing and gave rise to a needless application in the vacation period. The principal costs associated with this stay application arise from the decision of the Council to originally ask for a 28 day stay and wait until Christmas Eve to agitate an extension.

Given these factors, and despite the applicant’s ultimate success in achieving an extension of the stay, I propose to make an order that the costs of the motion be the respondent to the motion’s costs of the appeal.

On basis of significant expedition, I am persuaded that the balance of convenience lies in making the order.

Accordingly, the orders of the Court are:

I note the undertaking of applicant on the motion given by its counsel that, if unsuccessful in the appeal, it will pay any additional post judgment interest to the respondent on the motion within 7 days.