Bellevarde Constructions Pty Ltd v Cosmas Pty Ltd

1. [1]

   The Commercial List and Technology and Construction List Practice Note SC Eq 3 (at [62]) states that:

2. [2]

   Nonetheless, in the complex circumstances of this case, the plaintiff, Bellevarde Constructions Pty Ltd (I will call it the “Builder”), moves for summary judgment of its claim for declaratory relief and for judicial sale.

3. [3]

   The case is illustrative of the wisdom of the general rule. The application for summary judgment is refused.

Background

1. [4]

   The defendant, Cosmas Pty Ltd (I will call it the “Owner”), is the registered proprietor of a property in King Street, Sydney. The property has a current market value in the order of $11 million. The property is mortgaged to the Commonwealth Bank of Australia. The amount owing to CBA is in the order of $4.13 million. The Owner’s equity in the property is thus in the order of $6.87 million.

2. [5]

   Pursuant to a contract dated 29 August 2014, the Builder carried out building work for the Owner on the property.

3. [6]

   That contract contained a charging provision in cl 27 in these terms:

4. [7]

   By May 2015 the parties were in dispute. The Builder ceased work on the site in September 2015. On 17 September 2015 the Owner purported to terminate the contract and thereafter engaged another contractor to complete the works.

5. [8]

   In November 2015, the Builder made a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW).

6. [9]

   The Builder obtained an adjudication for some of its claimed amount. On 23 December 2015, it registered the certificate of adjudication and obtained judgment against the Owner in the sum of $986,703.60.

7. [10]

   In the meantime, on 13 October 2015, the Builder commenced these proceedings against the Owner seeking, relevantly:

8. [11]

   The Owner filed a cross-summons and cross-claim list statement seeking a declaration that certain claims under the contract have been settled, damages and, in the alternative, restitution for an amount allegedly overpaid.

9. [12]

   The Builder no longer seeks judgment in these proceedings against the Owner for a sum and has amended its claim accordingly.

10. [13]

    It maintains its claim for a declaration (now seeking, in effect, a declaration that the property is charged with payment to the Builder of the amount due under the 23 December 2015 judgment) and judicial sale.

11. [14]

    It now seeks summary judgment for that relief.

The issues

1. [15]

   The Builder’s case is that it is clear beyond argument that:

   1. (1)

      clause 27 of the contract has the effect of creating an equitable charge over the property in its favour;

   2. (2)

      the charge has been enlivened and now operates as security for the amount due under the 23 December 2015 judgment;

   3. (3)

      it is now entitled (“as of right”) to an order for judicial sale.

2. [16]

   The question of whether the charge has been enlivened raises two issues.

3. [17]

   The first issue is whether, on the proper construction of cl 27 and the contract as a whole, the charge in cl 27 arose as and when monies became due by the Owner to the Builder under the contract (as the Builder contends) or only on a final ascertainment of the amount due from the Owner to the Builder, taking into account any claim the Owner may have against the Builder under the contract (as the Owner contends).

4. [18]

   The second issue is whether, assuming that the contract was terminated on 15 September 2015, the King Street property remains charged in favour of the Builder so as to comprise security for its judgment of 23 December 2015.

5. [19]

   As to the question of judicial sale, the issues are:

6. [20]

   Neither party sought a declaration as to any of these matters, nor to have them determined as separate questions under Uniform Civil Procedure Rules 2005 (NSW) r 28.2. The issues arose in the exchange of submissions between the parties.

The proper construction of cl 27

1. [21]

   I have concluded, for the reasons I set out below concerning the question of judicial sale, that I should not enter summary judgment in favour of the Builder. In those circumstances, and as neither counsel suggested I should determine the construction question as a separate question, it is not appropriate for me to express any view about it.

2. [22]

   It suffices to assume, for the purpose of this application, that the charge operates as security for the judgment the Builder obtained on 23 December 2015 and that, notwithstanding the Owner’s purported termination of the contract, the Builder remains entitled to the benefit of the charge.

Assuming the charge in cl 27 operates as security for the judgment, is the Builder entitled to an order for judicial sale?

1. [23]

   To succeed on summary judgment for judicial sale, the Builder must demonstrate that it is clear beyond argument either that:

   1. (1)

      it is entitled to such a remedy as of right (which is the Builder’s primary position); or

   2. (2)

      assuming the court has a discretion as to whether to grant such relief , it is clear beyond argument that the discretion should be exercised in its favour.

2. [24]

   Or, to adopt the language more usually used in these cases, that it is “obviously untenable” and “manifestly groundless” for the Owner to contend otherwise (see the familiar observations of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129)

3. [25]

   As to the first point, it is by no means clear on the authorities that the Builder is entitled, as of right, to an order for judicial sale.

4. [26]

   There is certainly authority for the proposition that an equitable chargee is entitled to an order for judicial sale, and that no question of discretion arises.

5. [27]

   That authority appears to be born of the following statement, made in exactly the same terms in each edition of Sykes (now Sykes and Walker), The Law of Securities, (1st ed (1962) at 132, 2nd ed (1973) at 159, 3rd ed (1978) at 162-163, 4th ed (1986) at 195 and 5th ed (1993) at 198, Lawbook Co.):

6. [28]

   In no edition of the work is any authority cited for the proposition that an equitable chargee is entitled, as of right, to an order for sale.

7. [29]

   Nonetheless, in United Builders Pty Ltd v Mutual Acceptance Ltd (1979) 4 ACLR 176 at 179 Demack, Sheahan and Kneipp JJ accepted the proposition in Sykes as correctly stating the law.

8. [30]

   In BBC Hardware Ltd v GT Homes Pty Ltd [1997] 2 Qd R, Thomas J said (albeit without reference to Sykes, or to authority) at 126:

9. [31]

   In Sood v Christianos [2008] NSWSC 1087, Brereton J said at [16]:

10. [32]

    In Wenkart v Pantzer [2013] FCAFC 81, Dowsett, McKerracher and Foster JJ at [225] adopted as correct the passage from Sykes.

11. [33]

    But there is also authority that the court retains a discretion to withhold relief.

12. [34]

    In King Investment Solutions Pty Ltd v Hussain [2005] NSWSC 1076 Campbell J (as his Honour then was) said at [81] that “an order for judicial sale is the standard way of enforcing an equitable charge” but also said at [119]:

13. [35]

    More recently in Australia and New Zealand Banking Group Pty Ltd v Donnelly [2012] NSWSC 1615, Garling J cited the observations of Brereton J in Sood v Christianos and continued:

14. [36]

    It is not appropriate for me, on an application for summary judgment, to seek to resolve these lines of authority. It suffices to say that it is by no means clear to me that the Builder is entitled, as of right, to an order for sale.

15. [37]

    As Mr Miller SC, who appeared with Mr Macfarlane for the Owner pointed out, so much seemed to have been accepted by Mr Ashhurst SC, who appeared with Mr Corbett for the Builder, in his reply submissions, when he stated, referring to Garling J’s observations in ANZ v Donnelly:

16. [38]

    As to the second point, it is also not appropriate for me, on a summary judgment application, to attempt to review and come to a conclusion as to all of the factors potentially relevant to any exercise of discretion called for.

17. [39]

    Those factors include the fact that the Owner has a cross-claim which will not be resolved until the final hearing.

18. [40]

    As Mr Miller accepted, the Owner is not entitled to set off that claim against the 23 December 2015 judgment itself (which provides a “new foundation and origin for the debt” beyond the contract, which is now merged in the judgment: see Williams v Calivil Park Holstein Pty Ltd [2009] NSWSC 389 at [38]).

19. [41]

    However, the fact that the Owner claims to have a claim for damages against the Builder which arises under the contract is a matter relevant to whether the court exercises any discretion it might have concerning judicial sale.

20. [42]

    Further, the Owner’s equity in the property is substantial. Such security as the builder has over the property arising from cl 27 is unlikely to be eroded between now and the hearing. It could protect that interest by lodging a caveat. That is also a matter potentially relevant to discretion: see [35] above.

21. [43]

    The Owner also contends that there is reason to believe that the Builder’s financial position is such that there can be no confidence that it would be able to repay all or any of the funds realised on a sale of the property, were the sale to proceed and yet the cross-claim be successful. This aspect of the matter has not been developed as Mr Ashhurst has not had time to adduce evidence in response to that recently served on behalf of the Owner.

22. [44]

    On the other hand, as Mr Ashhurst said, the Builder is currently being held out of the money due under the judgment.

23. [45]

    It is by no means obvious how these matters should be weighed up. It is certainly not appropriate that I seek to do on so an application for summary judgment.

24. [46]

    The application for summary judgment is dismissed with costs.