Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : VALENTINE FALLS ESTATE PTY LTD -v- SMEC AUSTRALIA PTY LTD [2010] WASC 319

Practice and procedure - Application for summary judgment by defendant dismissed - Appeal by defendant - No substantial injustice if leave to appeal refused - Application for judgment turns on proper construction of contract - Construction issue properly left for trial - Arguable claim established

Supreme Court Act 1935 (WA), s 60(1)(f)

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552

Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256

Caratti Holding Co Pty Ltd v Austpeak Australia Pty Ltd [2011] WASCA 34

Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1

Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Hismelt Corporation Pty Ltd v Pratt [2007] WASCA 192

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

SAS Global Forrestdale Pty Ltd v Towton Investments Pty Ltd [2010] WASC 167

Silbert v Steinberg [2010] WASCA 113

The State of Western Australia v Bond Corporation Holdings Pty Ltd (1991) 5 WAR 40

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Valentine Falls Estate Pty Ltd v SMEC Australia Pty Ltd [2010] WASC 319

Wilson v Metaxas [1989] WAR 285

1 JUDGMENT OF THE COURT: This is an appeal against a decision of Master Sanderson dismissing the appellant's (defendant's) application for summary judgment under O 16 of the Rules of the Supreme Court 1971 (WA): Valentine Falls Estate Pty Ltd v SMEC Australia Pty Ltd [2010] WASC 319. The appellant contends that the master erred in finding that the respondent (plaintiff) had an arguable claim for damages of the nature sought.

2 As the decision of the master was an interlocutory decision, the appellant requires leave to appeal: Supreme Court Act 1935 (WA), s 60(1)(f). On 8 December 2010, it was ordered that the application for leave to appeal be heard with the appeal.

3 In its statement of claim, the respondent pleads that at the material time it was the owner of land in Kununurra on which it proposed to undertake a residential subdivision development. Principal financing for the development was, or was to be, provided by the National Australia Bank (NAB). The respondent says that, on or about 9 January 2008, it engaged the appellant to provide civil engineering and project management consultancy services in relation to the development. For that purpose, the parties entered into a written consultancy agreement. The consultancy agreement is alleged to comprise three documents: a proposal, a letter from the appellant to the respondent, and a document entitled 'Agreement for the Provision of Consultancy Services'.

4 The respondent pleads that the consultancy agreement contained express terms setting out the services the appellant was to provide. It was an express term of the consultancy agreement (relevantly) that the appellant was to provide those services 'with such skill, care and diligence as was generally exercised by competent members of the profession performing services of a similar nature'. It was also an express term that the appellant would indemnify the respondent against any loss arising from any negligent act, error or omission of the appellant in the performance of the services. The respondent also pleaded a duty of care owed to it by the appellant under the general law.

5 It is pleaded that, pursuant to the consultancy agreement, the appellant prepared civil engineering designs for the development (the SMEC Designs) and procured tenders for the civil engineering work to be carried out. The respondent alleges that, in breach of the consultancy agreement, the SMEC Designs were not prepared with the skill, care and diligence generally exercised by competent members of the profession performing services of a similar nature and, further, that the appellant was negligent in their preparation. It pleads that the SMEC Designs provided for work costing significantly more than was reasonably necessary for the proper undertaking of the development. The respondent says that if the civil engineering designs had been prepared in accordance with the consultancy agreement, the designs would have allowed the respondent to undertake the development to a reasonable standard at a significantly lower cost.

6 The respondent pleads that, by reason of the appellant's breach, it subsequently engaged another company, JDSi Pty Ltd, to produce alternative designs at a cost of $277,023. The respondent says that the development has been delayed by 12 months as a consequence of the appellant's breach, resulting in the respondent having to pay additional interest on funds already borrowed from NAB for the development, and additional land tax and local government rates. It further says that NAB refused to continue to provide finance unless the respondent injected an additional amount of $4,000,000 into the development. The respondent says that in order to meet that requirement it agreed to borrow those funds from Cardiff Capital Pty Ltd (Cardiff) at a rate of interest which was much higher than the rate payable under the NAB agreement. The respondent says that Cardiff also required it to engage Landdevelopment.com.au Pty Ltd (Land Development) as a project manager at the respondent's cost.

7 The respondent claims damages in respect of the following:

1. fees and charges paid or payable to JDSi;
2. additional interest expenses, additional local government rates and additional land tax paid or payable by reason of the delay;
3. fees and charges paid or payable to Cardiff;
4. interest payable to Cardiff over and above the rate payable under the NAB agreement; and
5. fees and charges payable to Land Development.

8 The appellant applied for summary judgment under O 16 on the basis that the respondent's claims were for 'consequential loss' and by virtue of cl 6 of the consultancy agreement the appellant was not liable for any such losses. Clause 6 of the consultancy agreement provided as follows:

To the maximum extent permitted by law:

Subject to this Clause 6, the [appellant's] liability to the [respondent] arising out of or in connection with this Agreement (including the performance or non-performance of the Services), whether under the law of contract, in tort, in equity, under statute or otherwise, shall be limited in aggregate to the amount specified in Attachment 1 or $300,000 [whichever is the greater].

The [appellant] is not liable to the [respondent] in respect of any indirect, consequential or special losses (including loss of profit, loss of business opportunity and payment of liquidated sums or damages under any other agreement).

The [appellant] shall be deemed to have been discharged from all liability in respect of the Services whether under contract, in tort, in equity, under statute or otherwise, at the expiration of the period specified in Attachment 1, or if no date is specified, on the expiration of 1 year from the completion of the Services.

9 On 7 September 2010, the master dismissed the application.

10 In his reasons for decision, the master noted that in construing cl 6 of the consultancy agreement the appellant relied entirely upon the meaning given to the term 'consequential loss' in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358. The master did not accept that the meaning given to the expression in that case was necessarily determinative of the meaning of it in cl 6. He noted that the terms of the respective contracts in question were different and had been entered into for different reasons. In addition, the respondent alleged that evidence of the circumstances in which the consultancy agreement was entered into was relevant to the meaning of cl 6. The master concluded that it was at least arguable that such evidence was relevant to the proper construction of cl 6 and accordingly it was not appropriate to deal with the matter on a summary judgment application; the respondent should have an opportunity to adduce at a trial any evidence which might be relevant to the proper construction of cl 6.

11 We should say that whilst the master did not expressly consider whether such evidence might lead to a construction of cl 6 which was contrary to the appellant's case, it is implicit that it was that prospect which led him to dismiss the application for summary judgment.

12 It is unnecessary to set out the grounds of appeal in full. In essence, the appellant contends that the master erred in finding that summary judgment should be refused because evidence of the circumstances in which the consultancy agreement was entered into might be relevant to the meaning to be given to cl 6. The appellant says that any such circumstances must be pleaded and, as no relevant circumstances were alleged by the respondent, the master should have found that on the proper construction of the consultancy agreement it was clear that the effect of cl 6 was that the appellant was not liable for any of the damages claimed. The appellant was therefore entitled to judgment.

13 As the appeal is against an interlocutory decision, the appellant requires leave to appeal. The principles which apply to an interlocutory appeal are well-settled. Generally the appellant must show that the original decision was wrong, or at least attended by sufficient doubt to justify the grant of leave, and that substantial injustice would be done if the decision was not reversed: Wilson v Metaxas [1989] WAR 285, 294. Those principles are not, however, inviolable and leave may be granted whenever the interests of justice require it: The State of Western Australia v Bond Corporation Holdings Pty Ltd (1991) 5 WAR 40, 56 - 57; Hismelt Corporation Pty Ltd v Pratt [2007] WASCA 192 [14].

14 As has been observed in some recent decisions, it is something of an anomaly that in a case such as the present an avenue of appeal lies at all. Where an application for summary judgment by a plaintiff under O 14 of the Rules of the Supreme Court is refused and the defendant given unconditional leave to defend, no avenue of appeal is available to the plaintiff: Supreme Court Act, s 60(1)(b). In such a case the rights of the parties are left to be determined at trial. It is not obvious why a different approach is taken in respect of an application for summary judgment by a defendant under O 16. In any event, the fact that an appeal concerns the refusal of an application for summary judgment informs the approach taken by the court to the grant of leave: Silbert v Steinberg [2010] WASCA 113 [8]; Caratti Holding Co Pty Ltd v Austpeak Australia Pty Ltd [2011] WASCA 34 [28].

15 In our opinion, the application for leave to appeal should be refused. We are of that opinion for three reasons. First, we are not persuaded that substantial injustice would be done if the decision was not reversed. While senior counsel for the appellant did not concede the point, he did not press with any enthusiasm the argument that the cost of the replacement designs prepared by JDSi was plainly a 'consequential loss' within the meaning of cl 6. That it was not pressed is not surprising. We think it is evident that on any view of cl 6, that claim, at least, clearly raises a triable issue. It follows that even if the appellant were to be otherwise successful on the application for summary judgment, that would not bring the action to an end; there would remain at least one issue which would have to go to trial.

16 Of course, in those circumstances the preparation for the trial and the trial itself would be more confined and less costly than a trial on all of the pleaded issues, but those are considerations of only limited weight in this case. To the extent that additional costs are incurred, the appellant would, in the ordinary course, be entitled to an order for costs if it were successful at trial. It is not suggested that the respondent would be unable to meet the costs if such an order were made. It is also not clear that the action would get to trial significantly more quickly if shorn of the other issues or that the appellant would suffer any prejudice beyond that which would ordinarily be associated with any such additional delay.

17 The strain which will inevitably be imposed on the relevant employees of the appellant by the litigation, the inevitable diversion of resources which the litigation will cause, and the uncertainty created by the outstanding claim, cannot be disregarded. But there is nothing to suggest that factors such as those bear some particular weight in the present case, especially in circumstances where the litigation will continue in some form in any event.

18 That is not, of course, to say that such factors or other factors can never justify a grant of leave to appeal against a dismissal of an application for summary judgement under O 16. Each case must turn on its own facts and circumstances. But in the present case, weighing up all of the relevant factors, we do not consider that the appellant has established that substantial injustice would be done if the decision was not reversed.

19 Secondly, we consider, with respect, that the master was correct in concluding that this is not an appropriate case for summary judgment.

20 The power to order summary judgment is one that should be exercised with great care: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial, that summary judgment ought properly be granted: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46]. And whilst the court may determine any difficult question of law on such an application, it will usually be appropriate to leave the determination of such questions for trial: see Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 - 515; Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1 [36].

21 The application for summary judgment thus depended upon the appellant establishing to a high degree of certainty that the terms of the consultancy agreement relieved the appellant from any liability that it might otherwise have to the respondent in respect of the claims pleaded. That turned on the proper construction of the consultancy agreement, and in particular, cl 6.

22 The relevant principles of construction are again well-known. The common intention of the parties to a contract is to be ascertained by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contract is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179. This normally requires a consideration of not only the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction, including the market in which the parties were operating: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 [22]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 - 462; Toll (FGCT) v Alphapharm (179).

23 In the present case, we do not consider that the proper construction of cl 6 is an appropriate matter for determination on a summary judgment application. It was not in issue on the appeal that the term 'consequential loss', as used in that clause, was not a term of art and that it has no fixed meaning. And senior counsel for the appellant did not contend that the meaning given to that term in Environmental Systems was determinative of it in this case. But it was submitted on behalf of the appellant that the respondent had not pleaded any material surrounding circumstances which might be relevant to the proper construction of cl 6 and accordingly the process of construction involved simply a consideration of the terms of the written instrument itself. The appellant contended that the master had therefore erred in finding that the respondent should be afforded an opportunity to lead evidence of the circumstances in which the consultancy agreement was entered into. It was argued that on a plain reading of the consultancy agreement it is clear that the respondent's claims constituted claims for 'consequential loss' within the meaning of cl 6 and the claims must therefore fail.

24 We do not accept that submission. As cl 6 was pleaded by the appellant in its defence, it is evident that any plea by the respondent of facts bearing upon the proper construction of cl 6 could only arise by way of reply. The respondent's reply was not included in the appeal books but was handed up in the course of argument on the appeal. Counsel for the respondent was at some pains, however, to stress that the respondent did intend to lead evidence of surrounding circumstances which, the respondent says, leads to a construction of cl 6 contrary to the appellant's case, and that the reply was to be amended once the summary judgment application was finally disposed of. He also referred to two affidavits filed in opposition to the summary judgment application which he said contained evidence of circumstances relevant to the construction of the consultancy agreement.

25 It is not immediately apparent how the matters referred to in the affidavits are relevant to the construction question but we do not think it is necessary to resolve that. Nor do we think it is necessary to consider the extent to which, in a case such as the present, such circumstances are required to be expressly pleaded. Suffice it to say that we do not consider this an appropriate case to determine the meaning of cl 6 in what Murphy J described in SAS Global Forrestdale Pty Ltd v Towton Investments Pty Ltd [2010] WASC 167 [67] as an 'evidential vacuum'. What is meant by the term, 'consequential loss', is, as Nettle JA observed in Environmental Systems, a vexed question [87]. What it means in the consultancy agreement is a matter properly left to trial.

26 The third reason we consider the application for leave should be dismissed relates to a matter which was raised by a notice of contention filed by the respondent. Put shortly, the proposal (which is one of the documents alleged by the respondent to constitute part of the consultancy agreement) contains a provision (the indemnity provision) in the following terms:

[The appellant] indemnifies the [respondent] for and against loss arising from any negligent act, error or omission of [the appellant] in the performance of the Services; provided that, the indemnity under this clause shall be limited to the proceeds of any insurance required to be in place under this agreement.

27 The same document contains a provision that the appellant must provide, among other things, professional indemnity insurance in the sum of $5 million.

28 Clause 6 does not appear in the proposal. It is contained in another document alleged to constitute part of the consultancy agreement, the 'Agreement for the Provision of Consultancy Services'. That document in turn has an 'attachment 1' in which the indemnity provision and the amount of the professional indemnity insurance cover are repeated.

29 Counsel for the respondent argued that on the proper construction of the consultancy agreement, the indemnity provision was not subject to cl 6 so far as cl 6 might exclude any liability of the appellant for consequential loss. Accordingly, it was submitted, even if the appellant's construction of cl 6 were to be accepted, the respondent would be entitled to recover consequential losses by its claim in negligence.

30 It is unnecessary and, as the action is to proceed, undesirable to offer any view as to the prospects of success of that contention. It involves a question of construction of the consultancy agreement which, again, we do not consider is appropriately undertaken on a summary judgment application. It is sufficient to say that it is arguable and, if accepted, clearly provides the respondent with an arguable cause of action in negligence in respect of any consequential losses claimed, regardless of the construction given to cl 6.

31 We would refuse leave to appeal and dismiss the appeal.