Simic v NSW Land and Housing Corporation: Misdescription of Contracting Party [2016] HCA 47

Today (7 December 2016). the High Court of Australia in Daniel Matthew Simic & Ors v New South Wales Land and Housing Corporation & Ors [2016] HCA 47 (7 December 2016) has unanimously allowed an appeal and cross-appeals from the decision of the Court of Appeal of the Supreme Court of NSW in Simic v New South Wales Land and Housing Corporation [2015] NSWCA 413 (18 December 2015), a case involving the key question of what should result from the misdescription of an entity in two instruments relating to undertakings and financial applications. 

Background Facts

In March 2010, Nebax Constructions Australia Pty Ltd (Nebax) entered into a contract with the first respondent, NSW Land and Housing Corporation (the Corporation) to construct home units at Bomaderry (the construction contract). In relation to the construction contract, Nebax obtained financial facilities from the second respondent (the ANZ Bank). Under one of those financial facilities, the ANZ Bank issued two performance bonds (the Undertakings), each of which was headed up as “Bank Guarantee”. Nebax in turn agreed to indemnify the ANZ Bank against any expenses it might incur, either in making the payments under the Undertakings or arising from any claim in relation to them.

The obligations of Nebax to the ANZ Bank were guaranteed by the appellants (the Guarantors), namely, three individuals and two corporations. In each of the Undertakings, the ANZ Bank undertook to pay “the Principal” up to $73,482.53 on demand. The Undertakings described the Principal as “New South Wales Land & Housing Department trading as Housing NSW ABN 45754121940”, which was neither the correct name nor ABN of the Corporation.

The Corporation sent a letter of demand to the ANZ Bank in October 2013 requiring payment in accordance with the Undertakings which the ANZ Bank refused to pay, due, it claimed, to the discrepancy in the description of the Principal in the Undertakings and against  the description of the Corporation in the letter of demand.

At Trial – NSW Supreme Court

The Corporation then commenced proceeding in the NSW Supreme Court against the ANZ Bank (see New South Wales Land and Housing Corporation v Australia and New Zealand Banking Group Limited [2015] NSWSC 176 (9 March 2015)). The ANZ Bank in turn made a cross-claim against Nebax (which had gone into liquidation by this stage) and the Guarantors. On 24 March 2015, his Honour Justice Kunc declared that the description of the Principal in the Undertakings meant the Corporation after finding that a reasonable business person would have understood that the beneficiary of the Undertakings was the entity with which Nebax had made the construction contract, and that it would be absurd for the misdescription to cause the Undertakings to be ineffective.

Justice Kunc then ordered the ANZ Bank to pay the Corporation $146,965.06 plus its costs and declared that the ANZ Bank was entitled to indemnity from Nebax and that the Guarantors were liable to the ANZ Bank under various surety and guarantee arrangements. Justice Kunc further found it unnecessary to order that the Undertakings be rectified by correcting the description of the Corporation in each of them.

Appeal – Court of Appeal NSW

The Guarantors appealed and the Corporation and the ANZ Bank each cross-appealed to the NSW Court of Appeal (see Simic v New South Wales Land and Housing Corporation [2015] NSWCA 413 (18 December 2015)). The Court of Appeal (comprised Bathurst CJ, Ward JA and Emmett AJA) unanimously dismissed the appeal and both of the cross- appeals and found that Justice Kunc, had not erred in construing the Undertakings, nor had he erred by considering the construction contract insofar as identifying its parties. This was because the construction contract and its parties were referred to in the Undertakings, which were to be construed so as to give them the effect they were clearly intended to have.

Further, the Court of Appeal held that such an approach “. . . did not violate either the principle of autonomy, which ought not be applied with unyielding exactitude, or the principle of strict compliance, which was a principle of performance rather than a principle of construing documents”.

Finally, their Honours found it unnecessary to order rectification of the Undertakings because, properly construed, they were addressed to the Corporation.

Appeal to the High Court

The grounds of appeal to the High Court included the following:

• The Court of Appeal erred in finding that the misdescription of the beneficiary in the two bank guarantees issued by the ANZ Bank, at the request of Nebax, did not entitle the issuing bank to refuse to payout on the bank guarantee to the Corporation whose name was similar to but materially different from the named beneficiary in the bank guarantee; and
• The Court of Appeal erred by finding that the “documentary discrepancy” present in the two subject bank guarantees did not affect the “principle of strict compliance” because that was a principle of performance only that applied only after the instruments were properly construed.

The Corporation filed a notice of cross-appeal, that:

• The Court of Appeal erred in not ordering rectification of the Undertakings.

The ANZ Bank filed a notice of cross-appeal, that:

• If the High Court finds that the Court of Appeal erred as alleged in the notice of appeal filed on 19 May 2016 and does not find that the bank guarantees the subject of this appeal are ineffective to create an obligation on the part of the ANZ Bank, the Court of Appeal erred:
• in failing to give judgment for and make orders in favour of the ANZ Bank against the appellants on the ANZ Bank’s cross-appeal pursuant to the admission of liability made by the appellants in the agreement between the ANZ Bank and the appellants reached during the hearing at first instance on 6 February 2015 (“the ANZ/Appellants’ Agreement”) and communicated to the Court at first instance on that date;
• in failing to give judgment for and make orders in favour of the ANZ Bank against the appellants on the ANZ Bank’s cross-appeal to give effect to the ANZ/Appellants’ Agreement under s 73 of the Civil Procedure Act 2005 (NSW);
• in failing to give judgment for and make orders in favour of the ANZ Bank against the appellants on the ANZ Bank’s cross-appeal to give effect to the ANZ/Appellants’ Agreement on the basis that it constituted accord and satisfaction.

The High Court’s Decision

In reaching its decision, the High Court held that it was not possible to construe references to a non-existent entity in two instruments, namely, the Undertakings and the underlying finance applications as references to the first respondent, the Corporation.  However, in so deciding, the High Court also held that the Undertakings and the applications should be rectified to refer to the Corporation.

In the High Court’s view, it was not possible to construe the Undertakings as being in favour of the Corporation because such a construction was inconsistent with both the express terms of the Undertakings and the commercial purpose of such instruments and it therefore, allowed the guarantors' appeal. In doing so, the High Court also held that, the Undertakings and the applications should be rectified to refer to the Corporation because it was the actual common intention of the parties that the Undertakings should go to the benefit of the party with which Nebax entered into the Construction Contract – namely, the Corporation.  It therefore granted special leave to cross-appeal and allowed each of ANZ's and the Corporation's cross-appeals.

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Daniel Matthew Simic & Ors v New South Wales Land and Housing Corporation & Ors [2016] HCA 47 (7 December 2016) and previous proceeding transcripts and summaries

Simic v New South Wales Land and Housing Corporation [2015] NSWCA 413 (18 December 2015)

New South Wales Land and Housing Corporation v Australia and New Zealand Banking Group Limited [2015] NSWSC 176 (9 March 2015)