ATTORNEY-GENERAL OF BOTSWANA -v- AUSSIE DIAMOND PRODUCTS PTY LTD [No 3] [2010] WASC 141 (23 June 2010)

ATTORNEY-GENERAL OF BOTSWANA -v- AUSSIE DIAMOND PRODUCTS PTY LTD [No 3] [2010] WASC 141 (23 June 2010) - WASC 2010 case summary — Zoe

[86]

10 The defendant's witnesses of fact were Mr Adamson and Mr Hanias. Mr Adamson had been involved in the supply of Edson drilling equipment since 1996. Mr Hanias had been in the drilling industry for over 35 years. He started in the industry as a drill technician. He is presently a director of the Australasian Drilling Association. He was an impressive witness in his grasp of technical matters and his knowledge of the drilling industry. In this transaction, Mr Adamson was the more 'hands on' of the two, and Mr Hanias, in effect left the day-to-day management of the transaction to Mr Adamson. In my view, both Mr Adamson and Mr Hanias attempted to give their evidence truthfully although Mr Adamson, in particular, seemed to me to be somewhat unsure of all the detail and timing of the events in late February/early March 2006. Both witnesses had, in their original witness statements, misstated the timing of their arrival in, and departure from, Botswana in late February/early March 2006. Both Mr Adamson and Mr Hanias said that they spent approximately three days on site in relation to the commissioning of the rig in late February/early March 2006. Mr Ntloedibe (exhibit 80A, pars 6, 10) had said, as did Mr Molatlhegi, that they were on site for two days. I think they are incorrect in that regard. At trial, there appeared to emerge common ground that Mr Hanias and Mr Adamson arrived in Botswana on 27 February, that the rig left for site on 28 February, and that it became bogged en route to site. It is also common ground, now, that Mr Adamson and Mr Hanias left the site where the drill was operating on Friday 3 March, and departed Botswana on Saturday 4 March. On the timing of the bogging, Mr Ntloedibe said, and I accept, that the rig became bogged at 7.00 pm on 28 February and was freed the next morning, 1 March 2006. I find that the rig arrived on site on 1 March 2006. I accept the evidence of Mr Hanias and Mr Adamson that they spent approximately three days on site with the rig, and I find that their time on site with the rig was for most of 1 March, and for 2 and 3 March 2006.

[395]

The essence of a building contract is a promise by the contractor to carry out work and supply materials in consideration of a promise by the building owner to pay for it. In most contracts for major works the contractor is given an express right to payment by instalments on account of the contract price as the works proceed, and so to that extent no question of an entire contract arises. But the rules as to entire contracts will still apply to the last instalment, or to any general balance due, or to any individual instalment if the work is abandoned or brought to an end before the instalment is completely earned. Furthermore, in many smaller contracts the question whether the contractor is bound to complete the works in their entirety before becoming entitled to any payment on account is of vital practical importance.

Where entire performance is a condition precedent to payment, the builder, in order to recover his price, must either prove entire performance or else an acceptance of the works by the building owner amounting to a waiver of the condition. However, while in contracts for the sale of goods the buyer must either accept or reject the goods and a failure to reject within a reasonable time will be regarded as an acceptance, and if he accepts them he must pay the price subject to any cross-claim for damages for breach of contract, a building owner who merely allows works erected on his land to remain there does not impliedly accept them. Thus where the contract is entire, the owner may get the benefit of valuable works not entirely completed by the builder without having to pay for them, unless the circumstances are such as to justify a quasi-contractual remedy. So a builder who has not fully completed the work, through no fault of the owner, cannot overcome his difficulty by ignoring the contract and sue on a quantum meruit for the work he has done. ...

Unlike contracts for the sale of goods, therefore, the consequence of a rigid application of the rule could work considerable hardship and anomalies in the case of contracts for services ... a builder might apparently have completed a project, but, if some omissions or defects were then discovered, the owner could then avoid payment of a perhaps substantial contract sum or balance otherwise overdue. ...

...

The anomalies resulting from entire contract interpretations did not give rise to serious difficulty in the case of contracts for sale of goods, or for mixed work and materials contracts, since, on easily sustainable theories of acceptance, failure by the purchaser to reject goods bought or made for him following their delivery would render him liable for the price, subject to set-off for any breach of warranty by the seller. ... Construction contracts, however, with their special characteristic of fixing and incorporation of work into the land of the owner, could not provide a satisfactory theory of acceptance to be derived from the mere fact of the incorporation of defective or incomplete building work into an owner's land, and so might create a special and real injustice where a contractor had bona fide completed a project but subsequent defects, quite possibly minor, were raised as a defence to the whole price by an owner unwilling to pay even a part of it. It was consequently in the field of construction contracts that the courts, much earlier than the case of Dakin v Lee in 1916 ... which is usually credited with its inception, evolved the doctrine of substantial performance.

[427]

238 On the other hand, where defects revealing unfitness for purpose or unmerchantability become apparent after examination, and the buyer is induced by the seller's representations to retain and not to reject the goods, on the basis that they are being, or will in due course be made satisfactory, the buyer's retention for that purpose may not in certain circumstances be regarded as an acceptance of the goods: Barber v Inland Truck Sales Ltd (1970) 11 DLR (3d) 469, 475; Burroughs Business Machines Ltd v Feed-Rite Mills (1962) Ltd (1973) 42 DLR (3d) 303, 307, affirmed Burroughs Business Machines Ltd v Feed-Rite Mills (1962) Ltd (1976) 64 DLR (3d) 767. In Public Utilities Commission of City of Waterloo v Burroughs Business Machines Ltd (1974) 52 DLR (3d) 481, 490. Although the above cases do not expressly articulate it, the underlying principle is likely, in my view, to be an estoppel. The seller is estopped, in consequence of representations (express or implied) to the effect that it would not treat the buyer's failure to reject the goods whilst repairs were being effected as acceptance, from contending that the buyer has accepted the goods, whilst the buyer, instead of rejecting the goods, acquiesces in the seller effecting repairs. The period in which the estoppel operated would, at least generally, not be included in the assessment of a reasonable time. The full scope of the estoppel and its application would depend upon the circumstances and precise nature of the arrangements in question. A correlative estoppel would generally arise by which the buyer would not exercise its right to reject whilst the seller was carrying out repairs. The estoppels might operate, at least in some circumstances, subject to the qualification that the buyer could terminate the suspension of its rights by giving reasonable notice of any departure from the assumed state of affairs: cf The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, 442; Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] UKHL 5; (1955) 1 WLR 761. The right of the buyer to do so would depend eg, on the nature and extent of the defects and the nature and scope of the repair work undertaken prior to the giving of the notice.

[499]

291 On the other hand, the defendant, in my view, breached its obligation to commission the rig insofar as it failed to carry out any test diamond core drilling on site. That breach did not itself, however, go to the root of the contract, so as to deprive the Department of substantial part of the benefit to which it was entitled under the contract: cf Koompahtoo Local Aboriginal Land Council v Sanpine [54] - [55]. The fundamental nature of the contract was one of sale, and the relationship created was one of buyer and seller, in which the buyer had the collateral benefit of the seller being obliged to commission, and train the buyer in the operation of, the goods sold. The breach was not wholesale, in that much of the commissioning and some training obligations had been performed, as noted earlier. The consequences of the failure to carry out test diamond core drilling by the defendant itself were not great, in that the task of testing diamond core drilling was undertaken by the Department in the defendant's absence. Diamond core drilling, as I have found, is the same or similar in operation to down-the-hole drilling. The Department's evident familiarity with diamond core drilling from using its existing Edson rig, the Department's acceptance of that task on site after having seen and been involved in operating the rig in down-the-hole drilling to a depth of 80 m, and the evident expertise of people such as Mr Ntloedibe, indicate that the Department was not unfamiliar with diamond core drilling operations so as to be incapable of fitting the rods or ignorant of the mechanisms to be employed in the course of diamond core drilling. The actual difficulty in carrying out diamond core drilling which transpired, proved to be the consequence (albeit significantly exacerbated) of the same problem which had arisen with down-the-hole drilling, namely the responsiveness of the hydraulic controls. At the time of breach, the Department was aware that the hydraulic controls had been agreed by the defendant to be the subject of repair or modification work. Accordingly, even if the commissioning and training terms were intermediate terms, in my view, the failure by the defendant to carry out test diamond core drilling on or about 3 March 2006 was insufficient to justify termination on the basis of a breach of those terms.

At a glance

Court

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Before

Catchwords

Source

Catchwords

Judgment (536 paragraphs)

ATTORNEY-GENERAL OF BOTSWANA -v- AUSSIE DIAMOND PRODUCTS PTY LTD [No 3] [2010] WASC 141 (23 June 2010)

The invitation to tender and the period to September 2003

The manufacture, despatch from Australia and payment of the balance: October 2003 to August 2004

Mr Adamson's attendance in Botswana 4 - 13 November 2004

Correspondence between the parties in the period 15 November 2004 to March 2005

Mr Adamson's attendance in Botswana 7 - 19 April 2005

The engagement of Minetech and the period July to December 2005

Attendance of Mr Hanias and Mr Adamson in Botswana in early 2006

Communications in the period March to October 2006

Whether termination available for breach of the commissioning obligation properly construed

The plaintiff's pleaded commissioning obligation

Legislation Cited (3)

Cases Cited (30)