10/10/2017 - 14:58

Diploma entities have a win on bonds

10/10/2017 - 14:58
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QBE Insurance Group has recorded one win and one loss this month as it battles in the Supreme Court for the financial scraps left after the collapse of Perth companies Capital Works Constructions and Diploma Group.

A Diploma Group subsidiary developed 176 Adelaide Tce. Photo: Attila Csaszar

QBE Insurance Group has recorded one win and one loss this month as it battles in the Supreme Court for the financial scraps left after the collapse of Perth companies Capital Works Constructions and Diploma Group.

Two entities associated with Diploma – Swanhill Enterprises and 176 Adelaide Terrace (176 Adelaide) – had a tactical win over QBE after the Supreme Court upheld performance bonds and maintenance bonds issued by the insurance group.

Swanhill was an entity related to the Di Latte family, which ran ASX-listed Diploma Group.

It entered a $12.4 million contract with Diploma Construction (WA) in 2014 to build the 71-room Quest apartment project on Mounts Bay Road.

176 Adelaide was a wholly owned subsidiary of Diploma Group and the developer of the Quest apartment project on Adelaide Terrace, once again with Diploma Construction (WA) as the builder.

QBE was the financier of Diploma Construction and in 2014 issued performance bonds and maintenance bonds to Swanhill (for $274,000) and 176 Adelaide (for $530,000).

In late 2016, after Diploma Group suspended trading in its shares but before the parent company was placed in receivership, Swanhill and 176 Adelaide called upon QBE to make payment under the bonds, but it refused.

QBE told the court Diploma Construction was not in breach of its contract with either of the developers and therefore no entitlement to rely upon the bonds arose.

The two developers responded by applying to the Supreme Court to have the bonds upheld.

In a judgement handed down last week, Master Craig Sanderson summarised QBE’s defence as follows.

“On the facts, Diploma was not in breach of its contract with either of the plaintiffs,” his summary stated.

“In other words, no entitlement to rely upon the bonds arose.

“Each of the plaintiffs knew that to be the case and it was therefore unconscionable for the plaintiffs to call upon the bonds.”

Master Sanderson rejected QBE’s defence.

“In my view it cannot possibly be unconscionable for Swanhill and Adelaide to make demand when the defendant was aware there could, at the time the demand was made, be disputes as between Diploma and the plaintiffs,” Master Sanderson found.

“That being so there is no substance in the defendant's contention.”

In a separate matter, QBE had a win this week over JGQ Developments, an entity associated with Capital Works Constructions director Joshua Coffey.

QBE provided builder’s warranty insurance to CWC, which collapsed in May 2015, and has subsequently settled multiple claims from CWC customers whose houses were defective or not completed.

The insurance group has responded by seeking to recover $8.3 million from Mr Coffey, fellow CWC director Frank Ricci, and JGQ, under indemnities they signed in 2011 and 2014.

Messrs Coffey and Ricci have been made bankrupt since the proceedings commenced, leaving QBE to focus on two properties in East Perth and Alkimos owned by JGQ.

QBE applied to the Supreme Court to extend a caveat it lodged over the two properties in March this year, pending determination of matters related to the enforceability of the JGQ indemnity.

JGQ’s lawyers argued it executed the deed after relying on representations by QBE that proved to be misleading or deceptive as to the term and quantum of cover.

For instance, QBE provided $32 million of cover up to September 2014 and reduced this to $10 million.

QBE responded that the reduced limit applied because JGQ failed to supply requested information.

JGQ also argued the caveat is delaying the sale of the land and there is, in any event, no equity for QBE after creditors are paid out.

Justice Banks-Smith found the balance of convenience favoured the extension of the caveat while other disputes were resolved.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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