Supreme Court New South Wales

• Medium Neutral Citation: Coe v Roth [2011] NSWSC 1427
• Hearing dates: 3 November 2011
• Decision date: 03 November 2011
• Jurisdiction: Equity Division - Commercial List
• Before: Rein J

Decision

1. Default judgment for the plaintiff against the defendant for damages to be assessed and for costs as agreed or assessed.

2. Damages assessed in an amount of $7,047,378.21.

• Catchwords: PRACTICE AND PROCEDURE - application for default judgment - where the plaintiff entered into a shipbuilding contract with a shipbuilder for the construction of a vessel - where the defendant is the guarantor of payments due from the shipbuilder - where the vessel was delivered late in breach of the agreement - where the shipbuilder had financial difficulties and sought overpayments from the plaintiff in order to complete the vessel - whether the overpayments by the plaintiff constitute unliquidated damages - where the plaintiff has issued notices of default to both the shipbuilder and the defendant but no payment was made in response - where the shipbuilder has gone into liquidation - the plaintiff seeks unliquidated damages from the defendant
• Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW)
• Category: Principal judgment
• Parties: Michelle Terese Coe (plaintiff); John Roth (defendant)
• Representation: J Clarke (plaintiff); Esplins Solicitors (plaintiff)
• File Number(s): SC 2009/298681

EX TEMPORE Judgment

1 This is an application for default judgment against a guarantor on an unliquidated claim and an assessment of the amount payable pursuant to the judgment.

2 In support of the plaintiff's motion the following affidavits were read:

(1) affidavits of Mr Stephen John Rush dated 7 October 2011, 20 October 2011 and 26 October 2011;

(2) an affidavit of Mr Gary James Jones dated 18 November 2010;

(3) an affidavit of Mr David Robert McQueen dated 22 November 2010;

(4) an affidavit of Mr Robert Leslie James Miller dated 10 November 2010; and

(5) an affidavit of Mr David Chau dated 27 October 2011 which deals with the issue of service.

3 The background is as follows. The plaintiff, Mrs Michelle Terese Coe, entered into a shipbuilding contract described as a "Construction Agreement" on 26 October 2006 with a company called Shipworks Group Pty Ltd ( "the Builder" ), and with the defendant, Mr John Roth, as guarantor. The Builder was placed in liquidation in July 2009.

4 By the Construction Agreement, the Builder was to construct a thirty-six and a half metre vessel and to do so by 26 August 2008. The amount payable for the vessel under the Construction Agreement was approximately $15 million.

5 There were a number of variations to the Construction Agreement which increased the price. Those variations, totalling an amount of approximately $1.9 million, were accepted by the plaintiff, and lead to, on the plaintiff's case, a new contract price of approximately $17 million.

6 The vessel was delivered late, on 27 May 2009, and in accordance with clause 17(b) of the Construction Agreement, a reduction of $600,000 was to be made to the contract price. In addition to the variations which were accepted by Mrs Coe, the Builder also claimed variations totalling approximately a further $898,000. Although Mrs Coe has disputed those variations and does not accept that they are validly added to the contract price, she is prepared, for the purposes of this application for default judgment, to accept that the contract price should be expanded by that amount.

7 Late delivery of the vessel was not the only problem. In April 2008, indications were given by the Builder that it needed advance payments of moneys not yet due under the Construction Agreement as there were difficulties in paying suppliers, and as time went on, it became apparent that the Builder was having problems paying suppliers and staff to such an extent that without further moneys being provided beyond those called for by the Construction Agreement, the Builder would not be able to complete the vessel.

8 The plaintiff's agent sought advice as to the costs and difficulties of having the vessel completed by another builder and later as to likely costs of completing the works. Mr David McQueen prepared a report dated 5 August 2008 headed "S120 Percentage Completion Report for Mrs Michele Coe" (annexed to his affidavit of 22 November 2010) and he estimated the costs to complete the works being approximately $3.78 million plus GST as at December 2008. That was a figure without any allocation of overheads and profit component and assumed completion in December 2008. The plaintiff also sought the advice, later in 2008, from a Mr Robert Miller, an accountant, whose affidavit dated 10 November 2010 was also read in support of the plaintiff's case. The plaintiff decided to leave the vessel at the yard of the Builder and have it completed by the Builder.

9 The detailed amounts of which I have given approximate figures are contained in the affidavits which are before the Court.

10 The plaintiff made a demand for $3,413,409.96 on Mr Roth in 2008 by a letter dated 28 October 2008 (see tab 6 of Exhibit C) which included a notice of default to both Mr Roth and to the Builder. No money was paid by the Builder or Mr Roth in response to that notice and demand. A further demand was made on Mr Roth by a letter dated 5 June 2009 from Mrs Coe's solicitors to Mr Roth's then solicitors, Messrs Holman Fenwick & Willan, which letter was referred to in the plaintiff's submissions and in paragraph 26 of the commercial list statement filed 8 July 2009 (and which has been made Exhibit F).

11 There are, also before the Court, documents relating to notification given to Mr Roth of today's hearing and to his solicitors in America. Last week, I struck out Mr Roth's commercial list response and his amended commercial list response due to his failure to give an address for service in Australia and his failure to appear to answer the plaintiff's notice of motion of which he had been given notice and of which further notice was given to him following orders made by McDougall J a fortnight ago. Mr Roth had solicitors acting for him in the filing of the commercial list response and the amended commercial list response. Those solicitors ceased to act and it was after that point that he was obliged to provide an address for service within the jurisdiction, which he did not do.

12 The Construction Agreement in question contains, relevantly, clause 22.1 which is headed "Guarantee" and provides:

"(a) By signing this document the Guarantor guarantees to the Purchaser that the Builder will pay any amount from time to time payable by the Builder to the Purchaser under or in respect of this Contract, including Clause 21.

(b) The Guarantor makes this promise in consideration of the Purchaser agreeing to enter into this Contract with the Builder."

13 Clause 22.2 of the Construction Agreement, which is headed "Payment", provides:

"If the Builder does not pay the Purchaser any amount of the Guaranteed Money when it is due, the Purchaser may demand that the Guarantor pays that amount to the Purchaser. The Guarantor must then immediately pay the Purchaser that amount:

in the currency in which the Purchaser is, or would have been required, to pay; and

with deduction of any amounts the Purchaser may owe the Builder.

If the Guarantor does not pay an amount which the Purchaser properly demands him, then, among other things, the Purchaser can sue the Guarantor.

This can happen as often as the Builder does not pay the Purchaser. It can happen even if the Purchaser does not take action to recover the Guaranteed Money from the Builder or any other person."

14 The term "Guaranteed Money" is defined in clause 1.1 of the Construction Agreement as follows:

" Guaranteed Money means all money which the Builder (whether alone or not) is or at any time may become actually or contingently liable to pay to or for the account of the Purchaser (whether alone or not) for any reason whatever under or in connection with the Contract including monies owed under or in respect of Clause 21(d)(ii).

It includes money by way of principal, interest, fees, costs, indemnity, charges, duties or expenses or payment of liquidated or unliquidated damages under or in connection with the Contract, or as a result of a breach of or default under or in connection with the Contract.

It also includes money that the Builder would have been liable to pay but for its Liquidation, or some other reason."

15 Clause 22.3 in the Construction Agreement is headed "Unconditional nature of obligation" and commences with the following words:

"The liability of the Guarantor under this Clause will not be affected by anything which but for this provision might operate to release, prejudicially affect or discharge any of them or in any way relieve the Guarantor from any obligation. This includes the following:..."

There then follows a number of specific matters which are not presently relevant.

16 There are several ways in which those overpayments could be categorised but the plaintiff's case is that what was paid was paid to ensure that the ship was completed and without the costs of engaging a new builder. It is put that by this means the plaintiff was mitigating her loss. An alternative way of viewing what occurred was that by agreeing to pay, Mrs Coe was agreeing to vary the contract price for the vessel. There is no evidence that the Builder sought to vary the contract price and I think that the evidence which is before the Court, particularly in Mr Jones' affidavit, is consistent with the Builder saying, in effect, that even though it was contractually bound to deliver a vessel at the price agreed, the vessel would not be handed over or could not be handed over unless further amounts were paid by Mrs Coe so that suppliers and staff could be paid.

17 There may be an interesting question of whether Mrs Coe had in a practical sense much choice about whether to pay the additional amounts requested and it might be thought that inadequate attention was paid at the time as to how the payments should be characterised. However, I think the plaintiff's case that she was in fact mitigating her damage is reasonable and given the absence of any defence or commercial list response, I think that the plaintiff is, subject to consideration of one matter which I shall deal with in a moment, entitled to judgment against Mr Roth.

18 Clause 22.2 of the Construction Agreement permits Mrs Coe to make a demand on Mr Roth if the Builder does not pay her any of the "Guaranteed Money" when it is "due".

19 The plaintiff, on paying moneys which were not due under the contract at that point in time, was incurring damage to the knowledge of the Builder. The definition of "Guaranteed Money" includes money due as unliquidated damages.

20 As a matter of construction, I think that the various moneys overpaid by the plaintiff were "due" when they were paid to the Builder and constituted unliquidated damages, and at that point the guarantor became liable to pay them. I accept that effectively, they are amounts which arose out of the process of mitigating the plaintiff's loss caused by the inability of the Builder to complete the vessel within time and within the contract price. Without the assistance that was provided by the plaintiff in payment of these further moneys, the strong likelihood is that the vessel would not have been completed and would not have been handed over to the plaintiff without protracted argument.

21 When the matter came before the Court last week, the plaintiff sought default judgment on the basis that the claim was a liquidated claim. I raised with Mr J Clarke of counsel, who appears for the plaintiff, a concern that the claim was not in fact a liquidated claim, and Mr Clarke sought and obtained an opportunity to consider that aspect further. In detailed and helpful written submissions, he explained why the claim could not be treated as a liquidated claim and why, as a consequence, he sought orders pursuant to rule 16.7 rather than rule 16.6 of the Uniform Civil Procedure Rules 2005 (NSW). The claim is an unusual one because although a guarantee claim, it is based on expenditure to mitigate loss and there is an intersection between the actual losses incurred and the terms of the contract and guarantee.

22 Whilst it is not easy to place the matter into a well-fitting mould, I think the appropriate orders, in light of the conclusion which I have reached, are:

(1) Default judgment for the plaintiff against the defendant, Mr John Roth, for damages to be assessed and for costs, as agreed or assessed.

(2) I assess the damages in an amount of $7,047,378.21; the calculation of that judgment amount can be found in Exhibit D.

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Decision last updated: 24 November 2011