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Varnsdorf v Fletcher Constructions

VARNSDORF PTY LTD V FLETCHER CONSTRUCTIONS LTD [1999] VSC 9

Supreme Court of Victoria – 1 February 1999

FACT

Varnsdorf was the lead contractor and Command and Fletcher were sub-contractors. Varnsdorf referred a dispute to arbitration.

Fletcher made allegations against Command in its witness statements and Command then served a notice of dispute after the thirty day time limit specified in the contract.

Command made an application to the Court for an extension of time to serve the notice of dispute. Section 48 of the Commercial Arbitration Act allows the Court to extend the time for doing any act linked to an arbitration.

ISSUES

Should the Court extend the time for Command to serve its Notice of Dispute on Fletcher?

FINDING

The arbitration was for a substantial dispute and Command would lose a large claim against Fletcher if the extension was not granted. Also there was no evidence of any prejudice to Fletcher if the extension was granted by the Court.

QUOTE

Beach J said:

“The amount at stake in these arbitration is large. Some measure of that is to be gained for the fact that accordingly to Megens’ affidavit Varnsdorf has already expended some $3 million in legal and other costs in preparing for the arbitrations and Fletcher has already expended the sum of approximately $2 million. Clearly great prejudice could be caused to Command if it was precluded from pursing its claim against Fletcher only by reason of the fact that it failed to serve its notice of dispute in time.” Paragraph 8(3) of [1999] VSC 9

“Command or its then solicitor – had I hasten to add that the solicitors presently acting for Command only came into the matter a comparatively short time ago – is solely responsible for delay in serving the notice and there can be no valid justification for its or his failure in that regard. But it has not been contended that that delay has caused any prejudice to Fletcher, nor in my opinion could it have been.” Paragraph 8 (5) [1999] VSC 9.

IMPACT

A Court will be willing to grant an extension of time to serve a Notice of Dispute provided the party seeking the extension would suffer a great prejudice and the other party is not prejudiced by the delay.

State of Victoria v Seal Rocks Victoria

STATE OF VICTORIA V SEAL ROCKS VICTORIA [2001] VSC 76

Supreme Court of Victoria – 23 March 2001

FACTS

The State had entered into a contract with Seal Rocks to design, construct, operate and maintain tourist amenities on Phillip Island.

Some disputes arose between the parties and they referred the dispute to arbitration as required by the arbitration clause in the contract.

The State claimed that certain documents should not be produced or disclosed to Seal Rocks as they were protected by public interest immunity. Seal Rocks disputed this claim and the Arbitrator heard evidence and submissions on this matter and then determined that the documents should be produced and disclosed to Seal Rocks.

The State sought a declaration that the documents were protected by the public interest immunity and sought orders that the determination of the arbitrator be set aside.

ISSUES

Was the determination made by the Arbitrator an interim award that could be reviewed by the Court?

Did the Court have a general power to supervise arbitrations and make interlocutory orders?

FINDING

The determination made by the arbitrator was not an interim award as it did not involved the resolution of any issue referred to arbitration and only involved resolving an incidental matter.

The Court does not have a general power to supervise arbitrations and it cannot review an interlocutory decision made by an arbitrator.

QUOTE

Bryne said:

“Faced with a strong line of authority which would deny to the court any inherent jurisdiction generally to review a procedural determination or evidentiary ruling of an arbitrator, I would be very reluctant to act upon the distinctionwhich these submissions would require the court to draw. … The acceptance of such a distinction would place an intolerable burden on the  arbitrator and perhaps on the parties an unacceptable prospect of interruption to the arbitral process by application to the Court.”

IMPACT

In this case the Court was unwilling to interfere with decisions made by the arbitrator during the interlocutory stages of the arbitration.

A Court should allow the arbitrator to control the conduct of the arbitration without being subject to the constant risk of being subject to review.

Stair Holdings v Celestino

STAIR HOLDINGS PTY LTD V CELESTINO [2000] VSC 235

Supreme Court of Victoria– 7 June 2000

FACTS

Celestino was the director of V & M Celestino Investments Pty Ltd. The company made arrangements to have Stair Holdings build a house for it and a contract between the company and Stair Holdings was prepared. Celestino signed the contract on behalf of the company and before signing he was told that he was signing the contract on behalf of the company and was not personally bound by the contract.

Clause 9 of the contract provided that “The client is considered to be the signatory to the acceptance of this quotation and such client is considered to be personally liable, for the settlement of the goods supplied in the event of the clients company defaulting on payments.”

The company went into liquidation and Stair Holdings lodged a proof of debt for outstanding accounts with the liquidator. Stair Holdings later became aware that the company owed over $300,000.00 to creditors and demanded payment from Celestino personally.

When Celestino refused to pay, Stair Holdings issued proceedings in the Victorian Civil and Administrative Tribunal. The Tribunal dismissed the claim and Stair Holdings appealed to the Supreme Court.

ISSUES

Was Celestino a party to the contract or bound by clause 9 of the contract?

FINDING

The Court found that Celestino was not a party to the contract as he was not a signatory to the contract.

Celestino only signed the contract as a director of the company and never agreed to be personally bound.

QUOTE

Smith J said:

“I note that there are other possible bases on which the decision, may be supported; for example, because of the representations, the respondent was entitled to and had avoided the contract or the appellant was estopped from relying on cl 9.

Alternatively, I note that in any event it can be argued that cl 9 rendered the company a signatory, not the respondent; for it makes ‘the client’ ‘the signatory’ and the company was ‘the client’.

In the alternative, it is arguable that cl 9 is meaningless and therefore uncertain and should be severed …”

IMPACT

When preparing contracts with a company it is important to ensure that proper contract clauses are included to make the directors also personally liable it that it the intention of the parties.

Also it is important to ensure that staff who ask customers to sign contracts are properly trained about what representations and statements should be made about the contents of the contract.

ST Kilda v ST Kilda Road

ST KILDA ROAD PTY LTD V 170-174 ST KILDA ROAD PTY LTD [2000] VSC 65

Supreme Court of Vic – 8 March 2000

FACTS

170 – 174 St Kilda Road (“170”) was the owner of the property at 170-174 St Kilda Rd, Melbourne. 170 agreed to sell the property to St Kilda Road Pty Ltd for $1,400,000.00. St Kilda Road Pty Ltd was to pay the balance owing on 14 September1999 but elected to extend the settlement date by paying $25,000.00 to 170 by cheque.

On 17 September 1999, St Kilda Road Pty Ltd stopped payment on the cheque and later on the same day 170 served a Notice of Default on St Kilda Road Pty Ltd. St Kilda Road Pty Ltd failed to comply with the Notice and failed to pay any further moneys to 170.

On 1 December 1999, 170 executed a new contract to sell the property to NDH. St Kilda Road Pty Ltd then lodged a caveat on the title to the property.

On 7 February 2000, the Supreme Court ordered that the caveat be removed. On 8 February 2000, St Kilda Road Pty Ltd lodged another caveat on the title. On 16 February 2000, the Supreme Court ordered that the second caveat be removed.

St Kilda Road Pty Ltd then issued this proceeding seeking an order that the Notice of Default was invalid as there was a contract between 170 and St Kilda Road Pty Ltd.

ISSUE

Should the Court stay the proceeding on the basis that it was an abuse of process?

FINDING

The issue of this proceeding by St Kilda Road Pty Ltd was clearly an attempt to interfere with 170’s sale of the property to NHD and the claims by St Kilda Road Pty Ltd had no merit. The proceeding was an abuse of process and was stayed.

QUOTE

Beach J said:

“In my opinion this proceeding is totally without merit and has been instituted by St Kilda [Roads Pty Ltd] to exert commercial pressure on 170.

Clearly that submission was designed to achieve a situation whereby settlement of 170’s sale of the land to N.H.D. would not take place on 30 March [2000] and in all probability N.H.D. would then walk away from the property.

In my opinion this proceeding has been brought for the improper purpose of frustrating 170’s sale of the property to N.H.D.”

IMPACT

A legal proceeding can not be bought simply to place commercial pressure on the other party.

There must be an arguable legal case to issue the proceeding and any attempt to issue proceedings to commercially pressure the other party is an abuse of process.

NovaWest Contracting v Tara Nominees

NOVAWEST CONTRACTING V TARA NOMINEES (1998) 5374 OF 98

Supreme Court of Victoria – 30 October 1998

FACTS

Novawest was the contractor appointed by Tara Nominees to conduct building work in Melbourne. The contract between the parties was an AS2124-1992 contract and an independent superintendent was appointed by Tara Nominees.

Novawest submitted progress claims to the superintendent and the superintendent determined that a progress payments should be made to Novawest. Tara Nominees refused to pay the progress payments and claimed that it had a claim for faulty work by Novawest.

Novawest sued for the debt owing under two progress payment certificates and obtained summary judgment against Tara Nominees. Tara Nominees made a claim for damages against Novawest and appealed the summary judgment decision.

ISSUES

Did the AS2124-1992 contract force Tara Nominees to pay the amounts due under the progress payment certificates issued by the superintendent despite the claims for faulty work.

FINDING

The contract provided that progress payment certificates issued by the superintendent had to be paid by the Principal immediately. If the Principal wanted to make a claim for faulty work it had to make a separate claim against the Contractor and could not deduct its alleged loss from the certified amount.

QUOTE

Gillard J said

“The parties have put in place a mechanism which protected their respective interests and required the defendant to pay the plaintiff on any certificate once issued but also enabled the defendant to protect its interest by pursuing a number of avenues to recover the liquidated damages. To permit the defendant in the court proceeding to raise a defence of set-off would be to defeat the common intention of the parties.” – paragraphs 127 and 128

IMPACT

The AS2124-1992 contract provides that the Principal must make progress payments as certified by the Superintendent.

If the Principal wishes to reduce or not pay the progress payments certified by the Superintendent then it will have to amend the AS2124-1992 contract. Otherwise it must make the progress payment and make a separate claim against the Contractor.

Leighton Contractors v East Gippsland Catchment

LEIGHTON CONTRACTORS PTY LTD V EAST GIPPSLAND CATCHMENT AUTHORITY [2000] VSC 26

Supreme Court of Victoria – 18 February 2000

FACTS

Leighton was retained by the Authority as a consultant and superintendent for flood response works.

The contract between the parties was drafted by employees of the Authority and included provisions about progress payments.

The contract provided that the Authority was to make progress payments to Leighton and could only withhold progress payment if the progress claim was disputed.

The Authority alleged that certain works supervised by Leighton were defective and withheld payment of progress payments until the work was rectified. Leighton sued the Authority and applied for summary judgment.

ISSUES

Was the Authority entitled to withhold payment of the progress payments?

Should the Court order that summary judgment be granted for Leighton’s claim for payment of the progress claims?

FINDING

The contract clearly provided that the Authority could only withhold payment of progress payments if there was a dispute about the contents of the progress claim.

Nothing in the contract indicated that the Authority had lost its right to defend a claim by Leighton by counter claiming for a related loss. The summary judgment would not be granted and claims by both parties would proceed to a trial.

QUOTE

Byrne J said:

“It is therefore necessary to consider whether these rights of an ordinary litigant have been removed or deferred by agreement between Leighton and the Authority.

At this point I repeat that the agreement contains no such express term….First, we are not here concerned with the right to withhold payment of a progress claim, but with the different question, whether the defendant to an action on the claim has lost the right to raise certain defences.

The second is the argument depends upon an inference starting from the fact that certain deductions are permitted and leading to the conclusion that no others are permitted.

It is clear … that the removal of the right to defend requires something more explicit than an inference of this kind.”

IMPACT

Contract provisions covering progress claims and payments should be clearly drawn and understood by the parties to mean that progress payments should not be withheld without good cause.

However even if the rights of the principal to withhold payment are limited, the principal will still be entitled to raise a counterclaim during proceedings by a contractor to be paid for progress claims, unless the contract clearly indicates that the principal is not entitled to raise a counterclaim as a defence to a progress claim proceeding.

John Hollan Construction & Engineering v Majorca

JOHN HOLLAND CONSTRUCTION AND ENGINEERING PTY LTD V MAJORCA

PROJECTS PTY LTD & ANOR (1996) 13 BCL 235

Supreme Court of Victoria – 26 July 1996

FACTS

The Majorca building is an Art Deco medium rise commercial building at 258 Flinders Lane, Melbourne. Majorca Projects Pty Ltd (“Majorca”) entered into a JCC contract with John Holland Construction and Engineering Pty Ltd (“John Holland”) to refurbish the building and to convert it into residential apartments with retail tenancies on the ground floor at a price of $2.8 million. Majorca engaged Bruce Henderson (“Henderson”) as Architect to administer the contract. The contract was substantially delayed, a dispute arose and Majorca went into liquidation.

John Holland contended that Henderson owed a duty of care, the content of which was a duty to act fairly and impartially in carrying out its functions as certified under the contract. John Holland contended that, as a consequence, it suffered loss and damage in the amount which might be found to be owing by Majorca to John Holland. That is, because of Henderson’s breaches, Majorca did not pay John Holland the amounts properly owing to it under the contract and that Majorca is now unable to make these payments. In particular, John Holland contended that Henderson acted unfairly and impartially by not giving John  Holland an opportunity to respond to representations from Majorca and by having regard exclusively or  Henderson submitted that it had no responsibility because to assume an obligation to act in the interests of John Holland was not its function.

ISSUE

Whether certifying Architect under the contract owed duty to builder to act fairly and impartially in carrying out its functions as certifier and assessor.

FINDING

The Court found that the Architect did not owe the Builder a duty of care but noted that the community would expect an Architect to exercise its onerous responsibilities with due care and without partiality or unfairness.

QUOTE

Byrne J at 29 said:

“The responsibility in question here is one to act fairly and impartially, to have regard to the interests of both the Builder and Proprietor. These interests are served by a certifier making decisions which are professional, careful and even-handed, not in the interests of any one party… It involves an examination of the terms of the building contract notwithstanding that the Architect is not a party to it… In my opinion, it is clear from [the provisions of the contract] that the question of the rights and remedies of the Builder for acts and decisions of the Architect were considered by the Builder and Proprietor, and in many cases, dealt with by making the Builder responsible in some cases for loss suffered as a consequence of those decisions, and by giving to the Proprietor the responsibility of supporting them upon review before the Court or before an arbitrator if it so chose, and at its own risk of an order for costs.”

Byrne J after considering the Architect’s experience of 12 years, concluded:

“Against this background, and given that state of the law or negligence as it then stood, and given the well-
established common law entitlements of the Builder in the case of fraud, corruption or collusion between the certifying Architect and Proprietor, it is in my opinion, not appropriate for me to seek to engraft upon the contractual background a tortuous obligation of the kind contended for by the Builder. There is in this case no room for a duty of care owed by the Architect to the Builder the relevant content of which was a duty to act fairly and impartially in carrying out its functions…”

IMPACT

This case stands for the proposition that Architects do not owe a duty of care, and are not directly liable, to Builders under a consortium Contract.

Kane Constructions v SOPOV

KANE CONSTRUCTIONS V SOPOV [2005] VSC 237

Supreme Court of Victoria – 26 July 2005

FACTS

Kane Constructions (“Kane”) entered into a contract with Sopov for the renovations and extensions to a former industrial building at 158-172 Oxford St, Collingwood in Melbourne. The works involved the internal construction and installation within the existing building of a gallery, office space, restaurant, basement car park and entrance areas. Clause 23 of the contract provided that “the Principal shall ensure that the Superintendent … (a) acts honestly and fairly; (b) acts within the time prescribed under the contract; (c) arrives at a reasonable measure or value of work”. The works under the contract were to be completed in 130 days. However, a series of delays occurred such that, a year later, the works were incomplete. Kane, the builder, complained of a number of matters including the lack of a suitably qualified Superintendent and suspended the works.Kane contended that the Superintendent failed to resolve discrepancies in the contract drawings, refused to grant  extensions of time and did not respond within the prescribed time and that the Superintendent was not independent and was at the whim of Sopov. Kane further contended that the Superintendent did not allow Kane to put its position forward on a number of items and the Superintendent was effectively “rubber stamping” Sopov’s position. Therefore, Kane submitted that the Principal was in fundamental breach of its obligations which were required to be discharged via an appropriate, competent, honest and fair Superintendent.

ISSUE

Whether the Superintendent was appropriate, competent, honest and fair.

FINDING

The Court considered that the relationship between Sopov and the Superintendent was “undesirably close” and found that the Superintendent failed to understand the obligations of his role and postponed making decisions he ought to have more promptly made as Superintendent, in all likelihood, because of the interference of Sopov. The Court held that the

Superintendent had failed to comprehend the need not only to be seen to be independent but actually to be independent. The Court concluded that the Superintendent did not act competently, or independently, in his role as Superintendent.

QUOTE

Warren CJ said at paragraphs 622 to 624:

“[622] There is a line of authorities where the courts have considered interference of the certifier or superintendent by the principal.

[623 A set of indicia of interference of a superintendent may be extracted from the authorities. First of all, with respect to the role of the superintendent, interference leading to impartiality can arise in a series of circumstances.

These include when the superintendent allows judgment to be influenced; when the superintendent is in a position whereby the certificate is deprived of value; when the superintendent acts in the interests of one of the parties andby their direction; when the position is misconceived and the superintendent acts as mediator; when there is not sufficient firmness in  order to decide questions based on his or her own opinion; where judgement and conduct are controlled by the principal; and where the superintendent considers the assent of the principal to be necessary, has ceased to be a free agent  and does not give full disclosure of every communication between the superintendent and the principal. Finally, the superintendent may lose independence without actually intending to do so or even without knowledge they have done  so.

[624] In relation to the principal, interference will arise where there is an attempt to lead the superintendent astray inthe interests of the principal; and where there is correspondence and communication of an improper character between the principal  and the superintendent. In relation to the contractor, interference will arise where the contractor has no knowledge of the interfering conduct so as to prevent the builder raising the point.”

IMPACT

Where the Superintendent does not act fairly and independently of the Principal the Courts may determine that the Superintendent is not acting fairly.

Hotline Communications v Hinkley & ORS

HOTLINE COMMUNICATIONS LTD V HINKLEY & ORS [1999] VSC 74

Supreme Court of Victoria – 24 March 1999

FACTS

Hinkley was the initial author of a computer program called Hotline. He came into contact with some Canadians and together they incorporated and became shareholders in Hotline Communications (“Hotline”). Hotline took over the development of thecomputer program.

The Canadian failed to provide promised finance to Hotline and Hinkley became disillusioned with Hotline. Hinkley therefore without warning to the other shareholders shut down the Hotline website, encrypted the source code for the computer program, told customers that Hotline was no longer in business, and returned to Australia.

Hotline issued an ex parte application and obtained an anton piller order against Hinkley and orders that Hinkley disclose the key to the encrypted computer program and copies of the computer program. An injunction was also obtained to prevent Hinkley from disclosing any confidential information about the computer program to any person other then Hotline.

Hotline went to Hinkley’s premises and obtained the computer programs on CD and also took Hinkley’s computer which contained the hard drive with computer programs.

Hinkley applied to set aside the anton piller order and the injunction and also applied for security of costs.

ISSUES

Should the injunction or anton piller order be set aside and should Hotline provide security for an undertaking to pay damages

if the anton piller order was found to have been improperly obtained after a trial of this proceeding?

Should the Court order that Hotline provide security for costs?

FINDING

The balance of convenience favoured the injunction remaining in place. There was no reason why the anton piller order should be set aside and the computer or computer programs returned to Hinkley.

However since Hotline was a foreign corporation with no assets in Australia it was ordered that security be provided for the anton piller order and for the future costs of this proceeding.

QUOTE

Warren J said:

“The plaintiffs [Hotline] submit that it is crucial to the business of Hotline Communications that it retain exclusive possession, custody and use of AW [the computer program].

The plaintiffs allege that in the absence of exclusive possession they are at risk of losing the value of the intellectual property.

Furthermore, the plaintiff’s are concerned that if they do not have exclusive possession of the property it will place them at risk that the information may be placed on the Internet. …

I consider that the balance of convenience lies with the Plaintiffs in that unless it has exclusive possession of the intellectual property in Hotline and AW the value of that intellectual property will be or potentially will be lost.”

IMPACT

A reminder that there are quite powerful legal remedies to prevent the misuse of confidential information and copyrighted material.

Gutnick v Dow Jones & Co Inc

GUTNICK V DOW JONES & CO INC [2001] VSC 305

Supreme Court of VIC– 28 August 2001

FACTS

An article headed “Unholy Gains” was published in Barrons Magazine and also placed on the Defendant’s website located in New Jersey USA. Dow Jones operated this as a subscriber site and had 1700 subscribers in Australia.

The claim was that the Defendant published words and pictures, including a photo of Mr. Gutnick along with an imputation that the Plaintiff “was masquerading as a reputable citizen when he was a tax evader who had laundered large amounts of money…”

ISSUES

The Court was required to determine jurisdiction on the basis of where the online article was published and forum non convenience (was Victoria clearly an inappropriate forum).

FINDING

The Court found that publication takes place where and when the contents of the publication are seen and heard. On the facts here that was when subscribers in Victoria downloaded the article and the State of Victoria has jurisdiction to entertain the proceedings.

The Court considered a number of factors including where the article was published, the plaintiff’s residence and business, seeking to vindicate his Victorian reputation and an undertaking not to sue in no other place in concluding that Victoria is both the appropriate and convenient forum.

QUOTE

Hedigan J

“…the critical issue is where and by whom it was published for the purposes of the law of deformation…publication takes place where and when the contents of the publication, oral or spoken, are seen and heard…and comprehended by the reader or hearer.”

IMPACT

Placing of articles on a website may amount to publication in the state where a subscriber views the article, under the law of defamation.

Further, anyone running a web site should be very careful in relation to defamation, particularly if users of the site can lodge materials published by owners of the web site.