Auburn Council & Anor v Michael Davies Associates Pty Ltd [2008] NSWCA 286 | Case summary

Auburn Council & Anor v Michael Davies Associates Pty Ltd [2008] NSWCA 286 | Case summary | Zoe

[13]

Thursday 6 November 2008 AUBURN COUNCIL & ANOR v MICHAEL DAVIES ASSOCIATES PTY LTD Judgment 1 ALLSOP P: I agree with the reasons and orders proposed by Giles JA. 2 BEAZLEY JA: I agree with Giles JA. 3 GILES JA: Auburn Council ("the Council") and the New South Wales Police Service ("the Police") undertook in joint venture the redevelopment of the Council's Civic Centre. The Council conducted the project on behalf of the joint venturers, and it will generally be sufficient to refer only to it. 4 Michael Davies Associates Pty Ltd ("Davies") provided design services for the project, and on behalf of the Council put the works out to tender for a construction management contract with a guaranteed maximum price. A contract was signed with Austin Australia Pty Ltd ("Austin"). Subject to modification of the design in certain respects, the guaranteed maximum price ("GMP") was $16.9 million. 5 The works proceeded to completion, with Davies providing further design and other architectural services. The Council accepted that two of the modifications were not made, and that the GMP to which Austin could be held was $17.105 million. But the Council in fact paid contractors a total of approximately $19.6 million, and Austin claimed from it in an arbitration still unresolved at the time of the trial damages in excess of $3 million largely by reason of what it claimed were increases in the scope of the work whereby it was not held to the GMP. 6 When Davies sued the Council for the balance of the fees claimed for its services, the Council cross-claimed to recover what it had paid over the $17.105 million and what it might have to pay to Austin in the arbitration, plus its costs of the arbitration. In the arbitration, however, the Council's position is that the rights and obligations of it and Austin (which is in liquidation) are based on a GMP of $17.105 million, and it denies any increases in the scope of the work whereby Austin is not held to the GMP. 7 The cross-claim was put in various ways, that maintained on appeal being that the Council had suffered and would suffer loss by conduct of Davies engaged in in contravention of s 52 of the Trade Practices Act 1974 (C'th). The conduct on which the Council relied on appeal, less than that on which it had relied at the trial, was that Davies had made representations about certainty of the price of $16.9 million and about the adequacy of its design documentation for a GMP contract. I will describe the representations later in these reasons. At least on appeal the Council's case was that, if the representations had not been made, it either would have reduced the scope of the works so as to be assured of a maximum price of $16.9 million or would not have gone ahead with the project at all. 8 The trial judge found that the representations as to the certainty of the price of $16.9 million had not been made. Her Honour accepted that the representations about the adequacy of the design documentation for a GMP contract had been made, but found that they had not been shown to be incorrect. Contravening conduct of Davies was not made out, and she did not address damages on the basis of suffering loss by contravening conduct. The other ways in which the cross-claim was put also failing, Davies obtained judgment for its fees and the cross-claim was dismissed. 9 The Council appealed in relation to the dismissal of the cross-claim. For the reasons which follow, in my opinion the trial judge was correct in holding that contravening conduct of Davies had not been made out. The appeal should be dismissed.

[15]

Davies becomes involved 13 A pre-tender meeting was held at the Council's offices on 28 July 1998. A representative of Davies, which had received the brief, was amongst the consultants present. The Council's representatives said that from an indicative costing point of view the Council had considered a construction cost for the preferred concept of $14.7 million and was prepared to go along with that, but that it was understood that the figure might be higher and if that were so what it did would need further consideration. 14 The closing date for tenders was 19 August 1998. Davies tendered for the preparation of the design solution. It submitted a fee proposal, noting an "Estimate of Cost" of $13.7 million, of a fixed sum for design up to and including submission of a development application and a different fixed sum for that work plus "preparation of construction/design documentation to the stage of novation to the design and construct contractor". The tender included misgivings about the preferred concept, and an expression of concern that the Council may not have had comprehensive advice and that it was "now locked into a very demanding programme to deliver the project for the Police Service by early 2000 hence the proposed delivery method about which we also have had serious misgivings". It said that Davies had "developed and rationalised it [the preferred concept] to make it a workable and cost effective solution not previously envisaged", and that Davies had "developed a further bold option" which would provide much greater benefits to the Council and the Police. This was called the MDA 2000 Option, and later became the basis for the redevelopment. 15 By a letter dated 26 August 1998 Davies responded to some questions from the Council. One question concerned the programme in Davies' tender. The letter said - "The dates shown on the programme included in our Professional Services Proposal are potentially realistic but will require a very great amount of co-operation from all the stakeholders. In addition, we would like to discuss the delivery method in greater detail with you, because we do not believe that design and construction is the most effective delivery method given the time constraints. We would like to suggest construction management, with a guaranteed maximum price to be provided subsequent to a formal tender process for preliminaries, profit and overhead components only."

[17]

18 A report of the meeting prepared for the Council included - "At the Councillor Workshop, the concept of possible staging of the project was introduced. The question of staging the project has two-sides; firstly the ability to remove or defer components of the overall scheme will lower the initial capital costs of the project and secondly, deferring components now, may lead to increased costs for those components at some time in the future. Decisions of possible staging of the project do not need to be determined at this time, as more detailed costings will be obtained at the completion of Stage 1. A report will then be presented to Council for determination. The New South Wales Police Service has advised Council that the proposed Police facility will be a Local Area Command Centre that caters for some 200 police officers, and that they need occupation of the building by March 2000 in order to fulfil their requirements for the Sydney 2000 Olympics. Given this timeframe, it is imperative that Council complete the design and documentation of Stage 1 of the Civic Precinct Redevelopment, in order for detailed costings to be obtained and a report presented to Council for final determination. To complete Stage 1, the architect Michael Davies Associates needs a direction on which option to develop further. Based on the information supplied in this report and attachments concerning the limitation of MDA Option 2A, the potential contractual variations in constructing adjacent to and on the existing Administration Building and the indicative cost comparisons of both options, it is recommended that Council endorse MDA Option 2000 as the preferred option and that the balance of Stage 1 of the project proceed accordingly. FINANCIAL IMPACT STATEMENT: A further report will be presented to Council at the completion of Stage 1, which will outline costs of the project. It should be noted that as the preferred option is developed further the costings will become firmer." 19 A Council meeting was held on 16 September 1998. It was resolved that the Council "endorse the principles of MDA Option 2000 for the completion of Stage 1 of the Civic Precinct Redevelopment project".

[18]

Use of a GMP construction management contract 20 As had been proposed in Davies' letter of 26 August 1998, the "delivery method" was changed from design, novate and construct to construction management with a guaranteed maximum price. According to Mr Ray Brownlee, then the Council's Director of Service Delivery, this was in early November 1998. According to Mr Davies, however, it came from his suggestion in the August letter, and he drafted the advertisement to which I shortly refer referring to a GMP construction management contract at a meeting on 26 September 1998 attended by, amongst others, Ms Lea Rosser, the Council's General Manager. The trial judge appears to have accepted this evidence, and it is likely that the Council agreed to the change at about this time. 21 The advertisement drafted by Mr Davies invited expressions of interest in appointment as construction manager for the project. It stated that "[t]he total project cost is likely to be around $15 million", and - "Council has selected Michael Davies Associates as architects and design managers for the facility. Design is currently under way. Council now wishes to appoint a construction manger to undertake the management of the construction works on a cost-plus-fixed-fee basis with guaranteed maximum price. Work is expected to commence on-site in January 1999 and the facilities are to be operational by March 2000." 22 Mr Davies was cross-examined about the reference to the total project cost of around $15 million. He said that the figure was provided by him and was used for "commercial reasons". In re-examination he explained what he meant by "commercial reasons" - "If you tell a contractor that a project is going to cost $20 million, it's very likely that the lowest tender will be $20 million or thereabouts. If you tell them on the other hand that it is $15 million, then you will probably get a price somewhere between 15 and 20 million dollars, in that example." 23 The advertisement said that "an information package setting out expression of interest submission requirements" was available from the Council, and that registration of expressions of interest should be placed in the Council's tender box by 2 pm on 20 November 1998.

[20]

The Council meeting on 2 December 1998 27 On the Council's case, the representations on which it relied about certainty of the price of $16.9 million were made at this meeting. Mr Davies denied saying anything at the meeting about a price of $16.9 million. 28 Mr Brownlee prepared a detailed report for the meeting. The "Summary" at its commencement was - "This report details the outline costs and debt servicing arrangements for the Civic Precinct Redevelopment project. It provides an overview of the master plan, relocation strategies, staging options and details of expressions of interest for the selective tendering of a construction manager to construct the project." 29 A history of the project was set out. It was then said - "The current status of the project is that the Development Application for the Civic Precinct Redevelopment Project has been lodged, advertised and assessed by independent consultant Laidlaw Sheridan Partners. If Council resolves to approve the development application and the recommendations in this report the next stages are as follows: 1. Call selective tenders for a construction manager to construct the Civic Precinct Redevelopment project. 2. Complete detailed drawings and documentation of the project by Michael Davies Associates. 3. Acceptance of construction manager tender to construct the Civic Precinct Redevelopment project. 4. Demolition of existing structures to commence on 8 February 1999. 5. Commencement of staged construction works in March 1999." 30 Two "project parameters" were noted, the first of which was - "1. The New South Wales Police Service have a requirement to occupy their building by March 2000 in order to fulfil their requirements for the Sydney 2000 Olympics. The Police Services building will be a Local Area Command that caters for some 200 Police Officers. This requirement of the Police Service has facilitated the need to employ a procurement method of Construction Management to achieve this objective. Construction Management involves the engagement of a construction manager who will tender for a number of work packages, such as demolition, concreting, electrical, mechanical, etc. The advantage of this method is that it will achieve the construction timeframe while continually testing the market for each work package to ensure the most competitive prices are achieved. Each separately tendered work package will be reported to Council for endorsement to accept the tender." 31 Options for staging the redevelopment were outlined, including a recommendation that "based on a legal impediment" the multi-story car park be deferred. The report then said - " Costs Council has employed the services of the Quantity Surveyors D G Jones Pty Ltd to determine the costings on the different components of the 'worked up' Development Application drawings. The costings provided by the Quantity Surveyors are the best available information at this time. Only when tenders are called and received will Council know the final bottom line cost. In saying that, it is felt the submitted figures shown below are a realistic reflection on the costings of each component. Item Costs Police Service Building $4,003,592 Council Administration Building $5,376,944 Library $3,136,750 Community Centre $1,850,295 Contingency $1,579,503 Escalation Costs $235,896 Fitout Works $2,538,266 Professional Fees $640,000 Relocation $500,000 Total $19,861,246

[22]

34 The process of inviting expressions of interest and selection of preferred tenderers for the construction management of the project was described. At the conclusion of the report it was recommended - "THAT: 1. Council adopt the Civic Precinct Redevelopment Masterplan. 2. Council proceed to undertake the demolition and construction of the Civic Redevelopment project as outlined in MDA Option 2000 for the following components: (a) Police Service Local Area Command (b) Council Administration Building (c) Library (d) Multi-purpose Community Centre based on the costings outlined in the report. 3. Council adopt the funding strategy outline in the report, including the disposal of the existing assets as identified. 4. Council adopt the relocation strategy as outlined in the report. 5. Council call selective tenders for a construction manager for the Civic Precinct Redevelopment project from the six (6) preferred tenderers as outlined in the report. 6. Council give the Mayor and General Manager delegated authority to complete negotiations for the Joint Venture Agreement between Auburn Council and the NSW Police Service. 7. Council's seal be affixed to any documents in relation to the Civic Precinct Redevelopment Project. 8. Council give the General Manager delegated authority to negotiate the sale of the assets identified in the report." 35 Mr Davies attended the meeting. On the Council's case, he gave a presentation in the course of which he said to the effect that the guaranteed maximum price was like a lump sum contract and gave the Council surety that the price would not go over $16.9 million. Mr Davies denied saying any such thing, or giving a presentation at all. As I have said, the trial judge found that the representations on which the Council relied had not been made, and I will return to this. 36 There was some dissension within the Council. A resolution was passed to the effect of the recommendation on the casting vote of the Mayor. It was also resolved that Davies be engaged "to complete the design and documentation of Stage 2 of the Civic Precinct Redevelopment project, for the sum of $451,000 subject to variations". 37 At the same meeting the development application was approved, and the Council issued to itself development consent for the project. The conditions included that the development was to be carried out "in accordance with the approved stamped plans prepared by Michael Davies & Associates, numbered DA01-DA109 and dated 24 November 1998, except as otherwise provided by the conditions of this determination."

[25]

Part B Tender Price(s)" 44 In the introduction to the invitation to tender it was said that the Council "requires a competent and experienced Construction Manager for the effective and economic completion of the project to the required quality, scope and function, on time and within the Budget". The Budget was not identified, save that in an outline description of the works it was said that the Council "anticipates the cost for the works to be managed as described above will be $17,000,000 (Seventeen million dollars)". The construction manager was to co-ordinate and manage construction of the works and all construction related contracts, but not itself to carry out any construction work; trade contractors would be paid directly by the Council. It was said that "[i]t is a fundamental requirement of the principal that completion of the Police Service and Council Administration components of the project be achieved by 9 February 2000". 45 Mr Davies gave evidence that the figure of $17 million was again inserted for commercial reasons. 46 The invitation to tender stated in relation to "Tender Part B" - " Financial proposal Tender a fixed lump sum price (not subject to cost adjustment) and time for completion for the Demolition works not including site establishment. The Principal will accept a price for demolition works from the successful Construction Manager only. Tender a fixed lump sum (not subject to cost adjustment) for Preliminaries including site establishment, together with a percentage to be applied to any authorised increase in the Guaranteed Maximum Price. Tender a range of Guaranteed Maximum Prices for a range of shares of savings The Principal does not require the total of the trade package cost estimates, the demolition price, the construction management fee and the price for preliminaries to equal the Guaranteed Maximum Price, however the cost of the risk implicit in the figures submitted will be considered in selecting the successful Construction Manager. In the evaluation of the financial proposal generally, emphasis will be given to the completeness of details provided as well as the figures themselves." 47 The tender form provided for the insertion of fixed lump sums for demolition works, for preliminaries including site establishment, and for construction management services, and for a range of guaranteed maximum prices according to the sharing of savings between the Council and the construction manager. It included - "I/We hereby tender the following guaranteed maximum price (GMP) for the works including demolition, preliminaries and construction management services. I/we guarantee that the total cost of the works will not under any circumstances (other than delays or substantial variations initiated by the Principal) exceed the sums set out below. The savings achieved below the GMP will be shared in the proportion set out below for the combinations selected by the principal."

[26]

The possibility of changing from a construction management contract 48 The trial judge found - "41 On 21 December 1998 Mr James wrote to Mr Davies requesting him to advise the six construction manager tenderers that the revised date for practical completion of the police building was 1 June 2000 and that the original March 2000 date no longer applied. Mr James asked Mr Davies to give precedence to the internal layout of the police building and suggested that the dollar component on that item may have to be reduced. Mr James advised that he would discuss the matter with Mr Davies by phone. Mr Davies gave evidence in his affidavit of 23 November 2006 that shortly after receiving this letter he telephoned Mr James and a discussion in the following terms took place: Davies: Now that the Police can wait until 1 June 2000, there is no need to go down the construction management path. We could use the time to fully document the Project and then call traditional tenders. James: No, Ray [Brownlee] prefers the flexibility of the construction management methodology. The Police can actually wait until 18 June 2000. Tell the tenderers of this revised date. Davies: Okay. 42 Although Mr Davies' affidavit suggested that the conversation in these terms occurred with Mr James, Mr Brownlee accepted in cross-examination that a conversation in similar terms occurred between himself and Mr Davies. That evidence was as follows (tr 168-169): Q. 21 December 1998. The requirement of the New South Wales Police Service altered from being one which was apparently an early February date, to one which was apparently an early June date? A. Yes. Q. It was in that context, wasn't it, that there was then a conversation between yourself and Mr Davies about whether, having regard to that development, the council wouldn't be better advised to actually complete the plans and specifications before contracting for the project? A. Yes. Q. It was on about 21 December 1998, wasn't it, that Mr Davies said to you that given that the police could wait until 1 June 2000, there was no need to go down the construction management path? A. Yes. Q. He said to you, didn't he, that the time could be used to fully document the project and then call for additional tenders? A. He may have. I can't deny that. Q. You can recall at least this much, can't you, that very shortly after the New South Wales Police Service apparently revised its requirement as to completion, Mr Davies said to you, "It would be better for the council to actually finish the design before contracting"? A. Yes. There was words "better for the council", I remember the conversation raising - saying we should change the method. Q. One thing that you did understand was that Mr Davies was making a recommendation to you that instead of going down the construction management contract with a GMP path, the council, now that it had more time, ought to go back to completing the design and calling for additional tenders? A. Yes. Q. You rejected the recommendation? A. Yes. Q. You rejected that recommendation because you were concerned about the political implications of going back to the council, isn't that right? A. Yes."

[28]

A series of meetings 53 Mr Davies attended a meeting with Ms Rosser, Mr Brownlee, Mr James and Mr Smith on 27 January 1999. As will be seen, the trial judge saw significance in the references at the meeting to a figure of $17 million rather than $16.9 million. Her Honour summarised the material evidence - "47 … During the course of that meeting Mr Davies claimed that Mr James informed Mr Davies that, "Ray wants to bring the price of the Project down to $17 million. We need to find savings to achieve this". Mr Davies gave evidence that this was the first time that he had been informed that the cost of the works for the project "had to be managed for $17 million". 48 Mr Smith's file note of this meeting recorded that its purpose was "to discuss potential deletions from the proposed project to reduce the cost to the project budget of $M17.0". It was also noted that in discussions with two of the tenderers, it had been suggested that changes to the scope of works could produce savings of approximately $2 million. A meeting was arranged for 29 January 1999 to review the construction management tenders." 54 Following this meeting Mr Davies prepared a document in which he calculated that the cost of the works for which tenders had been received equivalent to the works in the costing before the Council's meeting on 2 December 1998 was $18,721,246. This was mathematically the $16,905,847 plus contingency and escalation. Mr Davies gave evidence that he did so because he could not understand why the cost of the works "had to be managed for $17 million" when on his calculation the Council's budget, leaving aside professional fees and relocation costs, was $18,721,246, and also because he was concerned that the quality and integrity of his design for the project would be compromised if the cost of the works was to be limited to $17 million. The document referred to the figure of $17 million in the invitation to tender and said of it, "This figure was deliberately understated by MDA for commercial reasons and is therefore of no relevance to the tender assessment". 55 On or about 29 January 1999 Mr Davies attended a meeting with Mr Brownlee and Mr James. He was told that savings had to be found to bring the cost of the project down. The evidence of this varied. According to Mr Brownlee, he told Mr Davies that the cost had to be brought down to $16.9 million otherwise the project would not proceed, and when Mr Davies said that there was a $1.8 million contingency which could be used he replied that the contingency was for items such as latent conditions. According to Mr Davies, it was confirmed that the cost of the project had to be brought down to $17 million, and he produced the document he had prepared and explained that the figure the Council "should be aiming for" was the $18,721,246. Still according to Mr Davies, Mr Brownlee said bluntly that the Council's budget was $17 million and that the contingency sum was for latent conditions and should not be included. Mr Davies said he replied, "You have to allow contingency in the budget for things like escalation and design development. You know that we have not done full documentation and the design still needs further development. Most of the tenderers have allowed for this risk, hence the difference between the GMP and the estimated construction cost". Mr Brownlee said bluntly, "I want the project to be brought down to $17 million". Mr Brownlee gave evidence denying any discussion to this effect. 56 There was another meeting on about 1 February 1999, attended by the same persons. Mr Davies provided a document in which he set out an assessment of the tenders. It is apparent that not all were conforming tenders, and that some stated only one guaranteed maximum price and share of savings. The guaranteed maximum prices ranged (in round figures) from $18.8 million to $23.6 million, the majority exceeding $22 million. The assessment also showed the tenderers' construction costs, and according to Mr Davies (and apparently accepted by the trial judge) he explained that the difference between the construction costs and the GMP "represents the risk" and - "Once the project is complete, the difference between the final GMP and the actual construction cost is the amount to be shared between the construction manager and the Council depending on the share of savings agreed".

[29]

A fresh invitation to tender 57 In the following week Davies prepared a series of post-tender notices. They amounted to a fresh invitation to tender on revised documentation intended to reduce the cost of the works. The revised documentation was the subject of the representations on which the Council relied about adequacy for a GMP contract. 58 The first notice, issued on 3 February 1999, advised that the Council's tender and valuation committee had determined not to accept any tender "and to make significant modifications to the design in order to reduce the guaranteed maximum price to within the budget approved by Council and indicated in the invitation to tender previously … ". The notice said that the "documentation" was being revised and up-dated with the intention of re-issuing the tender invitation on 5 February 1999. 59 The second notice, issued on 5 February 1999, provided "revised documentation containing variations intended to significantly reduce the cost and hence the Guaranteed Maximum Price of the project". It listed "additional (substantially amended) design documentation as follows … " being a number of architectural, structural, mechanical, electrical and hydraulic drawings and some specifications and other documents. The date of 10 February 1999 at 4pm was stated for revised Part B tenders. 60 The third notice, issued on 9 February 1999, provided a revised tender form and a "further detailed schedule of amendments to documentation", and indicated that in addition - "Tenderers may consider the following additional potential savings provided same are reflected in the Guaranteed Maximum Price(s): · Delete Level 1 concrete floor slab, substitute bitumen paving. · Modification or deletion of roof over atrium. The latter would require waterproofing of walkways." 61 The revised tender form was more detailed than its predecessor. It provided for the insertion of fixed lump sums for demolition works, for preliminaries including site establishment, and for construction management services, and for a list of costs of "Estimated Trade Contracts". Only two alternative share of savings options were given. The form provided as before - "I/We hereby tender the following guaranteed maximum price (GMP) for the works including demolition, preliminaries, trade contracts, fitout works and construction management services. I/We guarantee that the total cost of the works will not under any circumstances (other than delays or substantial variations initiated by the Principal) exceed the sums set out below. The savings achieved below the GMP will be shared in the proportion set out below for the combinations selected by the Principal." 62 In the following part of the form it was stated that the guaranteed maximum price "may be reduced by the following items", and provision was made for deduction of an amount for each of four items. The first was deletion of the water feature and associated pumps etc, the second was deletion of planting troughs, the third was deletion of a covered way and the fourth was modification of the curtain walling.

[30]

Austin's revised tender 63 Austin submitted a revised tender, through the tender form and an accompanying letter dated 10 February 1999. 64 The tender form was completed with lump sums totalling $3,377,133 and figures for Estimated Trade Contracts totalling $15,272,900. Only a 50 per cent share of savings was taken up, and the guaranteed maximum price on that basis was $18,650,000. With a slight rounding-down, this figure was the total of the $3,377,133 and the $15,272,900. Figures were inserted for each of the four items by which the guaranteed maximum price might be reduced, the figures totalling $1,276,000. 65 The tender form included, after the guaranteed maximum price of $18,650,000, "*Alternative as per Tender Letter $16,900,000." It is appropriate to set out most of the letter of 10 February 1999 - "We have pleasure in submitting our Revised Part B Tender for the Construction Management Services for the proposed co-location Project involving Council's Administration Facilities and the Auburn Local Area Police Command. Austin also offers an Alternative Guaranteed Maximum Price Proposal of $16,900,000, as itemised below. Our Submission includes the revised Tender Form and Returnable Checklist of inclusions, as issued by Michael Davies Associates Pty Ltd on 9th February, 1999 and is based on the amended design documentation as listed in 'Post Tender Notice Number 2, dated 5th November, 1998' [sic]. Our clear understanding of the concept of a GMP is that the Principal need not allow any contingency as the only 'variable' for the Principal is in fact for Savings as any cost overruns are borne by the Construction Manager. As itemised on the attached Tender Form(s), our conforming Offer to Council provides a Guaranteed maximum Price of $18,650,000. However, Austin is fully aware of Council's objective to achieve the desired Facilities for $17 million and hence our alternative Offer. We feel that the existing Michael Davis [sic] Associates' design has significant merit and any agreed deletions from the project scope of work at this time should not prevent their re-introduction at a later stage. Under the Austin construction management approach, any monies which accrue either out of savings during the course of construction or from other sources to which the Principal may have access, can be utilised to reinstate the elements deleted from the original design. To ensure this can happen at no cost 'penalty', our offer includes for the necessary services connections, structural provisions etc. for the re-introduction of these elements. Having reviewed the re-issued design documents, we believe there are a number of areas in which cost savings could be achieved whilst not jeopardising the function, quality and presentation of the completed buildings. Some of these issues have been nominated in the re-issue Tender Form, however, we believe there are additional design aspects worth of re-consideration. One such area of saving involves the reduction of the rear (eastern) portion of the Atrium which would include associated modification to the lift location, fire egress, sprinklers etc (whilst always complying with the BCA). On the understanding that the design changes can be implemented to achieve nominated budgets, Austin is prepared to offer a Guaranteed Maximum Price as scheduled below: Tender Amounts 1. Demolition $426,300 2. Preliminaries $2,303,300 4. CM Fee $647,500 Trade Contracts $15,272,900 Principal Identified Reductions (Nos 1-4 incl) ($1,276,000) Reduced Atrium & Associated Work ($424,000) Miscellaneous Design Savings ($50,000) Austin GMP (based on a 50/50 share of savings with the Principal) $16,900,000

[32]

Austin's tender is accepted 67 Mr Davies prepared an assessment of the fresh tenders, which ranged from $15.2 million to $19.39 million. According to Mr Davies, he provided it at a meeting on 11 February 1999 attended by Messrs Brownlee, James and Smith and said - "Here is my analysis of the revised tenders received. I think Austin's price is contrived. Austin's price allows for no risk at all and is in complete contrast to its first tender. Further, Austin's proposal to delete the sprinklers is flawed. If the sprinklers are deleted, the atrium left will not comply with the BCA which I think will lead to its eventual abandonment because of the significant cost of a fire engineered solution." 68 The trial judge noted at [68] that "Mr Brownlee in his affidavit of 26 July 2006 denied that Mr Davies said anything about extra design fees for the deletion of the sprinklers at this meeting, however Mr Davies' affidavit did not specifically make such a claim". It appears that her Honour accepted Mr Davies' evidence. 69 Mr Brownlee advised Ms Rosser to recommend Austin to the Council as the preferred tenderer for construction management. He prepared a report for a meeting of the Council on 17 March 1999. In a history of the project the report said in relation to the original tenders - "An extensive evaluation of the tenders was carried out by representatives of Council, the NSW Police Service and Council's Architect and Quantity Surveyor. All of the tenders submitted were in excess of Council's budget of $16,905,847, for the construction of the Civil Precinct Redevelopment project. To ensure the project could be built for the amount Council had approved at the meeting of 2 December 1998, it was determined that some design amendments were required. … " 70 The trial judge noted at [79] that this was the first time that any document referred to the Council's "budget" being $16,905,847. As I have indicated, the figure represented the total of the first to fourth and seventh items in the costings recorded in the report for the meeting of 2 December 1998. 71 The report for the meeting of 17 March 1999 set out a comparative table of the fresh tenders, and said - "A further evaluation of the tenders was conducted by the Council, NSW Police Service and Council's Architect, based on the reviewed submissions of the six preferred tenderers. As outlined in the table above Austin Australia submitted the lowest 50/50 Guaranteed Maximum Price of $16,900,000 for the construction of the Civic Precinct Redevelopment project. The amendments proposed by Austin Australia are considered acceptable and when added to their guaranteed maximum price for calculation purposes, show that Austin Australia provide the best value to Council and the NSW Police Service for the construction management of the Civil Precinct Redevelopment project. After calculating the revised submissions of the six preferred tenderers, Council, NSW Police Service and Councils Architect interviewed the preferred tenderer Austin Australia. It is apparent from the documentation provided and the interview conducted that Austin Australia was capable and had a demonstrated ability in undertaking work of a similar scope to the Civic Precinct Redevelopment project." 72 The recommendation in the report included - "(a) Council accept Austin Australia tender for demolition works for the Civic Precinct Redevelopment project for the lump sum price of $426,300, and that this be funded as outlined in the report.

[34]

A contract with Austin 74 The invitation to tender had said that the contractual arrangements would be reviewed by the Council's legal advisers, and the Council had engaged solicitors for the preparation of a construction management contract. Mr Brownlee had a number of meetings with representatives of Austin in which the contract was discussed. Davies was not involved with the preparation of the contract or in the meetings. 75 The solicitors used a standard form contract with amendments. They drafted a GMP clause in different terms from that in the revised tender form, but in a letter to the Council referred to both reduction and increase in the $16.9 million as a result of variations - "In the clause which we have drafted in relation to the guaranteed maximum price we have proposed that for the purpose of determining whether there have been any savings that the price of $16,900,000 will be adjusted by the costs of variations to the Contract in either direction, ie if the variation results in a saving the $16.9 million figure is reduced and if it results in a price increase then the $16.9 million is increased." 76 On 22 March 1999 the Council entered into a contract with Austin. Austin's letter of 10 February 1999 and the completed tender form were Annexure A to the contract, and the drawings and specifications issued with post-tender notice No 2 were Annexure D. 77 The contract envisaged further development of the drawings and specifications. It required construction in accordance with drawings and specifications "which have been or will be prepared by" Davies. The Council's duties included (cl 8) retaining Davies "in order to prepare Drawings and Specifications for the works and to be responsible for the design". Austin's duties included (cl 3) consultation with Davies as to (inter alia) alternative designs or materials and - "(d) prepare a preliminary budget estimate based on the Drawings and Specifications; (e) continue to review the budget estimates as the development of the Drawings and Specifications proceeds and, when they are completed, prepare a final cost estimate (to be called the Estimated Total Cost of the Works) for approval by the Principal;

[42]

"(g) Construction of the MDA Option 2000 through a construction management agreement with a GMP, and based on documentation to be prepared by MDA, would not exceed $16.9 million." 83 While it was not evident from the pleadings, as the trial was conducted these representations rested upon what Mr Davies was alleged to have said at the Council meeting on 2 December 1998. 84 Paragraphs (f) and (g) were introduced by amendment in the course of the trial. Under a notice of contention Davies submitted that any cause of action to which they gave rise was statute barred, and that the trial judge should have refused leave to the Council to rely on the representations, at all or except upon terms that preserved any time bar. Given my view on the asserted representation, at the meeting of 2 December 1998, it is not necessary to consider the notice of contention. The issue thereby raised involves the interplay between Commonwealth and State laws (the Trade Practices Act and the Civil Procedure Act 2005) and the operation of s 79 of the Judiciary Act 1903 (C'th) and possibly s 109 of the Constitution, see recently Agtrack (NT) Pty Ltd v Hatfield, [2005] HCA 38; (2005) 223 CLR 251 and Air Link Pty Ltd v Paterson [2005] HCA 39; (2005) 223 CLR 203. The submissions were less than complete, and there is inconsistency and some unclarity in the cases which will on an appropriate occasion require attention. 85 The trial judge gave detailed consideration to the Council meeting on 2 December 1998, over some 31 pages of her reasons. Her concluding paragraph was - "299 There was obviously some discussion about the nature of a GMP with the Council officers at some time and there was obviously discussion about the Council's budget of $17 million, rather than $16.9 million, in late January 1999. However I am satisfied to the requisite standard of proof that Mr Davies did not make the alleged statement at the Council Meeting on 2 December 1998." 86 The expression of this conclusion may have reversed the onus of proof, since it was for the Council to satisfy the trial judge to the requisite standard of proof that Mr Davies made the alleged statement at the Council meeting on 2 December 1998. However, it is evident that her Honour came to the positive conclusion that the statement was not made. 87 The trial judge set out much evidence of what occurred at the meeting. Ms Rosser gave evidence that Mr Davies gave a presentation in the course of which he said "The GMP is like a lump sum tender. It gives the Council surety that the cost will not go above $16.9 million". Mr Brownlee gave like evidence, although recalling slightly different words. Mr Terrence Keegan and Mr Mohamed Saddick, respectively the Mayor and a councillor at the time, gave evidence that Mr Davies said at a meeting in early December 1998 (Mr Keegan) or late 1998 (Mr Saddick) words broadly to the same effect, although there were quite significant differences. Only Mr Davies gave evidence on this matter in Davies' case. He denied that he gave a presentation or made the statement, or even knew at the time that the Council had a budget of $16.9 million. 88 In summary, the trial judge's reasoning was as follows: · The minutes of the meeting made no mention of a presentation by Mr Davies, but did refer to presentations by other persons including in relation to the project. The minutes did not mention a figure of $16.9 million or a guaranteed maximum price. · The minutes referred to the project as outlined in the MDA Option 2000 "based on the costings as outlined below". The amounts referred to below were in relation to funding for a total of $19,861,000, that being the Jones costing in the report placed before the meeting. · The minutes aside, there was no documentary record of any kind of the alleged presentation or representation by Mr Davies. · Until the amendment of 10 April 2007, the Council's case had been that Mr Brownlee told Mr Davies on 3 December 1998 that the Council's budget for the project was $16.9 million. The delay in alleging that Mr Davies made the statement in question at the meeting on the preceding day was a significant matter. · Each of Ms Rosser, Mr Brownlee, Mr Keegan and Mr Saddick were providing affidavit evidence of what occurred at the meeting more than seven years thereafter, from their recollections unaided by any minute or other record. · There were differences in the recollections of the witnesses, but a "rather extraordinary" identicality in the words recalled by Ms Rosser and Mr Brownlee. Her evidence previously given in the arbitration indicated that Ms Rosser did not have a specific recollection of what occurred at the meeting of 2 December 1998. · Mr Saddick was rather confused about what had occurred at the meeting on 2 December 1998, and it was difficult to have any confidence in his version of events. Mr Keegan accepted that there was no budget for $16.9 million, although claiming that if the amount had gone over such a figure it would not have been approved. · While Mr Davies exhibited irritation with the cross-examiner, the occasions on which the Council relied for the submission that he would not answer questions and sought to avoid admissions did not so indicate. His conduct in the witness box was "similar to the way in which he usually conducts himself", as could be seen from letters written in 1999 showing that he had "the tendency to argue the point". Implicitly, Mr Davies' credibility was accepted. · A cost limit of $16.9 million, and that Mr Davies would have made the statement as alleged, were difficult to reconcile with the statement in the tender invitation, provided to the Council, that the Council anticipated a cost for the works of $17 million. · Consideration of the meeting between Mr Brownlee and Mr Davies on 3 December 1998 and letters of 2 and 31 March 1999 and 8 July 1999 did not support, but were against, knowledge in Mr Davies of a budget of $16.9 million. (I will deal with to this in more detail when considering the Council's submissions on appeal.) · After the tenders were received Mr Brownlee told Mr Davies that savings had to be found to bring the project cost down, and Mr Smith's file note of the meeting of 27 January 1999 described its purpose as discussing "potential deletions from the project to reduce the cost to the project budget of M$17.0". This was contrary to an existing commitment to a maximum price of $16.9 million. 89 I emphasise that this is only a summary; it is necessarily incomplete, and the trial judge's consideration was far more detailed. Her Honour thought that the documentary material, including the absence of any record of the presentation or statement by Mr Davies, militated against Mr Davies having made the statement alleged. While accepting the force of the Council's submission that it was improbable that all of Ms Rosser, Mr Brownlee, Mr Keegan and Mr Saddick would be mistaken, and observing that they appeared to be trying to do their best, she said that memory was a complex phenomenon. She was conscious of delay and "the intrusion of suggestions made in prior cross-examination" (meaning in the arbitration). She said that reliance on more closely contemporaneous documentary material was to be preferred. 90 The Council submitted that it was glaringly improbable, in the sense spoken of in Fox v Percy (2003) 214 CLR 118, that its four witnesses should be mistaken, where the conflict was not just over what was said but over whether Mr Davies said anything at all. It said that the improbability could not be passed over by treating memory as a complex phenomenon. 91 The Council further submitted that the trial judge's reliance on documentary material was misplaced. First, it said that in her regard to what the minutes did not say the trial judge erred in law because she acted upon the presumption that the minutes accurately recorded the official business of the Council. Secondly, it said that the evidence of the Council's witnesses was not contradicted by contemporaneous documents, but at most was not corroborated; and that contemporaneous documentary corroboration was in fact to be found in the meeting between Mr Brownlee and Mr Davies on 3 December 1998 as recorded in the letter of 31 March 1999 and in the report written by Mr Brownlee for the Council's meeting of 17 March 1999. 92 The trial judge was fully aware of Mr Brownlee's references in the lastmentioned report to "Council's budget of $16,905,847" and "the amount Council had approved at the meeting of 2 December 1998". As I have said, she noted that this was the first documentary reference to the budget figure, and in the course of her consideration of the representations presently in question observed that Mr Brownlee did not say that the Council adopted that budget figure at the meeting. The minutes of the meeting on 2 December 1998, so far from recording adoption of the budget figure, recorded a resolution for proceeding with the project based on the costings outlined in the report, and the report said clearly that the costings were the best available information at the time and only when tenders were received would the Council know "the final bottom line cost". The trial judge was entitled to give little weight to what Mr Brownlee said in his report in March 1999, after cost-cutting had been directed and Austin had provided the alternative guaranteed maximum price of $16.9 million, in the light particularly of the reference to $17 million in the invitation to tender and Mr Smith's note at the end of January 1999 referring to a budget of $17 million. 93 I have referred to Mr Brownlee's evidence that on 3 December 1998 he told Mr Davies of a construction budget of $16.9 million. The occasion, according to Mr Brownlee, was agreement on Davies' fees when the estimated cost of $13.7 million in Davies' fee proposal in August 1998 had become $16.9 million. Mr Davies denied any discussion of fees. 94 In a letter dated 2 March 1999 Davies proposed a new fee arrangement. The letter identified changes in what was now required of Davies, one only of which was that the original fee proposal was based on an estimated cost of $13.7 million "which you have instructed should now be increased to $17,000,000". In the letter dated 31 March 1999 Mr Brownlee advised that at its meeting on 17 March 1999 the Council had resolved to accept Austin's tender and had "given authority to proceed with full documentation for the work for the agreed fee which had been adjusted for the estimated cost budget being increased from $13,700,000 up to $16,900,000 … ". The letter stated a figure for the fees. Davies wrote questioning the figure for the fees as not in accordance with its proposal, and there was considerable later correspondence. In one of the later letters, a letter dated 8 July 1999, Mr Brownlee gave a history which included that a pro-rata increase in fees was agreed at a meeting on 3 December 1999. Davies did not contest in its subsequent letters either the reference to a figure of $16.9 million or that part of the history. 95 The Council submitted that the letter of 8 July 1999 supported that there had been a discussion about fees on 3 December 1998, and that if that were so Mr Davies' denial of a discussion about fees could not be accepted and Mr Brownlee's account, including the reference to a construction budget of $16.9 million, should be accepted; further, that the letter's reference to the figure of $16.9 million was contemporaneous documentary corroboration. 96 The reference to the figure of $16.9 million was again a matter in which the trial judge could see little weight, see above. As to the meeting on 3 December 1998, the trial judge noted that Mr Brownlee had approved payment of a progress claim to Davies in February 1999 on a non-pro rata basis and said - "269 If it had been agreed on 3 December 1998 that the plaintiff's fees were to be paid on a pro-rata basis of an increase in cost from $13.7 million to $16.9 million then it is reasonable to expect that Mr Brownlee would not have approved the payment of the progress claim of 17 February 1999 and would have corrected Mr Davies' claim in his letter of 2 March 1999 that the cost had increased to $17 million rather than $16.9 million. These may appear to be relatively small matters, however when official Council documents do not record what two former Councillors and two former Council employees claim to have occurred at a Council meeting, it is important to look at the surrounding circumstances and documents produced at that time to assess the probabilities of what actually occurred at that meeting.

[43]

297 I do not accept that Mr Brownlee said to Mr Davies on 3 December 1998 that the Council's budget for the Project was $16.9 million. I do not accept that Mr Brownlee informed Mr Davies on 3 December 1998 that the plaintiff's fees were to be adjusted on a pro-rata basis for an increase of costs to $16.9 million. I am satisfied that it is more probable than not that when the tenders were received in late January 1999 the Council reviewed the position before it gave instructions to Mr Davies to issue the Post Tender Notices and/or to attempt to bring the costs of the Project down." 97 In my opinion, the findings as to the meeting of 3 December 1998 were open to the trial judge and have not been shown to attract appellate intervention within the principles considered in Fox v Percy and CSR Ltd v Maddalena [2006] HCA 1; (2006) 224 ALR 1. 98 The trial judge's reasons in relation to the minutes of the meeting on 2 December 1998 included - 278 Even if it is accepted that "some imprecision" is to be expected and/or tolerated in Council Minutes, the lack of any mention of Mr Davies' presentation and/or alleged assurance that the Council could complete the Project for no more than $16.9 million in my view is not mere "imprecision". Neither is the failure to record an alleged resolution to adopt a budget of $16.9 million for the construction of the Project. The Minutes of the Council Meeting record the resolution that the plaintiff's fees were $451,000 subject to variations. It is odd, to use Mr Faulkner's expression, that the Minutes should record the resolution to engage the plaintiff to complete the design and documentation stage of the Project at a particular price and yet not record the alleged resolution that the budget for the Project was fixed at $16.9 million. The motion that was carried included the funding arrangement not for $16.9 million but for $19.861 million. It is reasonable to expect that such significant matters would be recorded in the Council Minutes if they occurred. Indeed it is presumed that the Minutes accurately record the official business of the Council until the contrary is shown: Minister for Natural Resources v New South Wales Aboriginal Land Council & Anor (1987) 9 NSWLR 154 at 164 per McHugh JA . It is not appropriate to dismiss these absences on the basis of mere imprecision and I am satisfied that the absence of any mention of these matters in the Council Minutes is a significant factor to be taken into account in determining whether Mr Davies made the alleged statement at the Meeting." (emphasis added) 99 I have emphasised the sentence in which the Council said the trial judge erred in law. It submitted that Minister for Natural Resources v New South Wales Aboriginal Land Council (1987) 9 NSWLR 154 at 164 per McHugh JA did not support the presumption stated by the trial judge. His Honour was addressing the presumption of regularity in the conditions necessary for the exercise of official powers, and its application to minute-taking may be debateable. However, the significance open to be seen, and seen by the trial judge, in the absence of mention in the minutes did not depend on any presumption of law, and her Honour did not come to her decision on the basis of a presumption of law that the minutes accurately recorded the Council's business. She gave considerable attention to evidence of, and bearing upon, what occurred at the meeting. I do not think there was material error. 100 The trial judge's detailed reasons, which I have only summarised, must be taken into consideration, as must the Council's submissions in combination. The occasions on which the Council, and Mr Brownlee in particular, did not dissent from a figure of $17 million, which would be expected if there was a commitment to $16.9 million for which there was Mr Davies' assurance, are significant. Further, Mr Davies' conduct in January 1999 questioning bringing the cost down to $17.0 million provides support for the acceptance that he did not believe there was such a commitment. Further, that there was as at 2 December 1998 a commitment which required ignoring the amounts for contingency and escalation is not easy to accept; Mr Brownlee's view of contingency is rather aberrant. I am not persuaded that appellable error has been shown in the trial judge's finding that the representations as to the certainty of the price of $16.9 million had not been made.

[44]

Contravening conduct - adequacy of the design documentation for a GMP contract 101 The Council relied on appeal on the representations alleged in sub-paras (a) and (e) of para 31 of the cross-claim. Paragraph 31 relevantly alleged - "31. In preparing and issuing the Tender Form Part B and the GMP Documentation to the tenderers and the Council in circumstances where Michael Davies knew that the Council would not accept a tender for more than $16.9 million, and in the circumstances set out in paragraph 1-17 above, Michael Davies represented to the Council that: (a) The GMP Documentation had been prepared with reasonable care and skill; … (e) The GMP documentation was adequate to form the scope of works for a construction management agreement with a GMP; … " 102 The GMP Documentation was the drawings and specifications provided with post-tender notice No 2 issued on 5 February 1999. 103 The Council alleged representations on which it acted, not representations on which Austin acted. Subsequent paragraphs of the cross-claim alleged, in substance, that the Council acted on the "faith and truth" of those and other representations in entering into the contract with Austin, which it would not have done had Austin's guaranteed maximum price been more than $16.9 million because in that event it would have reduced the scope of works and required design alterations to ensure that the cost of the project was not more than $16.9 million. Davies did not contend on appeal that the two representations had not been made. 104 It is evident that, as the trial was conducted, the incorrectness of the two representations coalesced. 105 As to the representation in sub-para (a) of para 31, the trial judge said that "[f]or the reasons set out earlier" she was satisfied that the GMP documentation was prepared with reasonable care and skill. The reasons set out earlier were her Honour's consideration of the Council's claim in negligence, which included the allegation that the GMP Documentation had not been prepared with reasonable care and skill. 106 The claim in negligence in this respect was centred on the allegation that the GMP Documentation was not adequate to form the scope of works for a GMP construction management contract, and was relevantly considered by her Honour on that basis. She summarised the respective submissions - "164 The plaintiff submitted that the Council knew that the GMP Documentation was 'substantially incomplete' and without further revision, incapable of being developed for construction at a cost of $16.9 million. It was submitted that so far as the 'adequacy' of the GMP Documentation was concerned, the Council knew that all prospective tenderers had responded twice and that DG Jones had found it possible to cost the plans and specifications as late as 22 January 1999 at $20.9 million.

[47]

167 The plaintiff focused upon establishing the GMP Documentation was 'incomplete' and that the Council knew that it was 'incomplete'. The Council took issue with the relevance of that approach on the basis that the claim it makes was that the GMP Documentation was "inadequate" and not merely 'incomplete'." (emphasis in original) 107 Over some fifteen pages the trial judge considered the evidence of the experts, Mr Mark Bullen (architect) called on behalf of Davies and Messrs John Poiner (architect), John Alden (civil and structural engineer), Joseph Chow (mechanical engineer), and Neil Wyles (electrical engineer) called on behalf of the Council. 108 It was common ground that the GMP Documentation was incomplete and for that reason could not form the basis for an accurate tender estimate. Again very much in summary, the trial judge said - · Mr Bullen accepted that in relation to mechanical services the GMP Documentation was inadequate for fixed lump sum tendering, but this was not tendering for a fixed price contract and he did not agree that for a guaranteed maxim price full documentation was necessary. While in cross-examination he agreed that, on certain assumptions in relation to a proposed GMP construction management contract, the architect should prepare documents as if for tendering for a fixed price contract, the assumptions did not apply to Davies' circumstances in February 1999. · Mr Poiner said that the GMP documentation fell short of what was required for construction, and that an architect using it as the basis for a GMP contract should advise the client that extension of the scope of the works would entitle the contractor to claim further costs and should warn it of the danger of cost increases and hence of the "inherent dangers of such a contract". Mr Poiner said that the suggestion by Davies that it ought to finalise the design before the Council entered into a contract and its advice that Austin's price was contrived because it made no allowance for any risk were appropriate advice. He also said that the Jones estimate of 22 January 1999 "may well have a bearing on" some of his views, but what effect it had on his views was not elaborated. The trial judge observed that this "significantly diminishes the value of Poiner's opinions". · Mr Alden said that it would have been apparent that the structural steel work design was at a very early stage of development "and hence that any contract based on the GMP documentation would be potentially subject to significant variation". In fact, as he noted, the drawings were marked "preliminary only not to be used for construction". Mr Alden's professional expertise was limited to preparing drawings for use by others who may wish to do estimates or costings, but he did not do them himself, and that called in question his opinion. His evidence supported that it was obvious that the GMP Documentation was at an incomplete stage, and the Council was certainly aware that it was incomplete. · Mr Chow said that in a number of respects the GMP Documentation was "deficient". The gravamen of his opinion was that the GMP Documentation was incomplete. · The evidence of Mr Wyles similarly went to lack of detail or clarity in the GMP Documentation, and his complaint in that respect was a complaint that it was incomplete. 109 The trial judge expressed her conclusion - "201 The construction management procurement method is different from a lump sum or fixed price contract. Mr Davies conceded in his cross-examination that 'at the end of the contract' there was 'probably' no difference between the three types of contract. However there is obviously a difference at the beginning of the contract. The evidence establishes that the reason the construction management method, as opposed to the more 'traditional' methods, was chosen was the time constraints under which the Council was operating. The construction management method enables the fast tracking of the development with concurrent design and construction. The terms of the Austin Contract clearly envisaged such a system. In the other form of contract the design is completed first and then followed by the construction of the project. The design is fully documented for the purpose of fixing the cost of the project so that a lump sum or fixed price is ascertained in reliance on detailed or 'fully documented' drawings.

[48]

202 I do not accept that the plaintiff has confused the two concepts of 'incompleteness' and 'inadequacies' in the GMP Documentation. The plaintiff was instructed to adjust the documentation to reduce its scope and to find savings. It was not instructed to proceed with 'full' documentation of the Project until nine days after the Austin Contract was signed. I am not satisfied that the GMP Documentation produced by the plaintiff pursuant to its instructions was 'inadequate'. I am satisfied that the GMP Documentation was 'incomplete' or put another way, it was not fully documented, and that the Council was well aware of that fact. Indeed the Council rejected the plaintiff's advice to proceed with the full documentation and traditional tendering method. I am not satisfied that the plaintiff was in breach of its retainer or its duty of care in producing the GMP Documentation." 110 The trial judge dealt more briefly with the representation in sub-para (e) of para 31. Her Honour said - "218 The question is whether such a representation was false. There is no evidence that suggests that the GMP Documentation, although incomplete, was inadequate to form a scope of works for a construction management contract with a GMP. The 'scope of works' in this context is not the same as in a traditional tendering process for a fixed price contract or a lump-sum contract. As I have said elsewhere, in the traditional method, full documentation or full design is completed prior to construction commencing, whereas in a construction management contract with the GMP, design is developed concurrently with construction in what has been referred to as a 'fast track' method with a skeleton set of documents to be fully documented later. The 'scope' for a fixed price contract includes all the materials and work that are necessary to construct the project the subject of the contract. The 'scope' in this instance was different. All the materials and details of all the work were to be fully documented later. The adequacy of the scope in this instance is quite different to that which is required for a fixed price contract. Full documentation was not required to be produced by the plaintiff until it received its instruction on 31 March 1999 that the Council had decided at its meeting on 17 March 1999 that such should occur. The GMP was to be provided on the skeleton documents with the proposed deletions and/or savings. The 'scope' that was identified in the GMP Documentation was adequate for the purposes of the tendering for a GMP with the scope to be identified in more detail in the 'full' documentation, to be completed at a later time. I am not satisfied that the Council has proved that this representation was false or that it was misleading or deceptive. The Council's case in relation to this representation fails." 111 There were difficulties in the way the Council appears to have put its case at the trial, and as a result in the way the trial judge was brought by the parties' submissions to decide it. 112 Adequacy is relative to a standard; adequate for what purpose? The standard taken in the Council's case was adequacy to form the scope of works for a GMP construction management contract. But that standard left much obscurity. The GMP Documentation was adequate to produce tenders, which was the occasion for its preparation - Austin and other contractors tendered. The Council's case involved that it was inadequate because it would not produce a reliable tender, meaning that development of the documentation in the course of construction might entitle the construction manager to claim an increased guaranteed maximum price or at least cause it to contend that it was so entitled. That notion of inadequacy required regard to, amongst other things, the terms of the construction management contract, and a view of a construction manager's predilection to make claims beyond its entitlement - something which is not unknown no matter how complete the documentation - and to a question of the Council's awareness that the incompleteness of the documentation could have that consequence. 113 The Council accepted on appeal that its case at trial had been that the GMP Documentation had to be appropriate for tendering for a fixed price contract. This did not allow for resolution of the obscurity in the notion of inadequacy. The Council's reasons for its case at trial, essentially the risk to the guaranteed maximum price from development of the documentation, necessarily meant that transition from incompleteness to inadequacy in documentation required regard to the circumstances in which the documentation was prepared and issued. For example, if the construction management contract unequivocally bound the construction manager to the guaranteed maximum price, placing the risk of development of the documentation upon the construction manager, there would be adequacy. If the principal knew and accepted that the documentation was at a stage where its development might entitle departure from the guaranteed maximum price, it could be said with force that there would be adequacy. 114 More fundamentally, the proceedings were distorted by the way the Council pleaded its case. The correct question was whether, in issuing the GMP Documentation, Davies engaged in misleading or deceptive conduct or conduct that was likely to mislead or deceive ("misleading conduct") within s 52 of the Trade Practices Act, with the Council suffering loss by that contravention of the Trade Practices Act. Misleading conduct can be found otherwise than in representations, and it was artificial to plead the contravening conduct as representations to the Council. There was nothing by way of overt representation that the GMP Documentation had been prepared with reasonable care and skill or that it was adequate to form the scope of works for a GMP construction management contract. The Council was well aware that the GMP Documentation was not full documentation and that the design remained to be completed, see amongst other evidence the conversation with Mr Brownlee on about 21 December 1998. There was to be a contract, which could firmly place any risk on the construction manager. Even if incompleteness meant inadequacy in some relevant sense there was not necessarily misleading conduct, since the Council may reasonably have been thought itself to have understood that the incompleteness, subject to the terms of the contract, could lead to justified excess over the guaranteed maximum price. 115 As became apparent at the hearing of the appeal, the Council's complaint should have been of misleading conduct in that it was left unaware, when it should have been made aware, that the GMP Documentation was such that development of the documentation could have the consequence that the construction manager claimed an increased guaranteed maximum price. This would have been related to, but not the same as, the warning case presented by the Council at trial as part of its case in negligence. It is appropriate to set out the relevant part of the trial judge's reasons dealing with the warning case - "203 The Council alleged that a competent architect would have warned the Council that the GMP Documentation, if used as a basis for a GMP contract, may expose the Council to a claim of an increase in costs and expenses because the scope of works may need to be increased beyond that in the GMP Documentation. The Council relied upon Mr Poiner's opinion in this regard, however, as I have said earlier the value of Mr Poiner's opinions was significantly diminished as a result of his concession that the DG Jones 22 January 1999 estimate "may well have a bearing" on his opinions and the failure to identify those opinions.

[65]

211 In all the circumstances of this case I am satisfied that the plaintiff was not required to give the warning to the Council. The Council has failed to establish that the plaintiff breached its retainer or its duty of care to the Council." 116 Despite the dichotomy presented by the parties between incompleteness and inadequacy, the Council's Trade Practices Act case was in fact determined with some regard to the Council's awareness of the risk in proceeding with a GMP construction management contract with a price based on the GMP Documentation. It will have been noted that the trial judge recorded the Council's submission that the "truth" of inadequacy remained hidden, and she was satisfied that the Council was well aware that the GMP Documentation was incomplete. But of more importance to the Council's allegation of misleading conduct were her Honour's reasons for disposing of the warning case. 117 I turn to the Council's submissions on appeal, which were extensive; I have sought to distil their substance. 118 The Council's principal submission, said to bring error in finding that the GMP Documentation was adequate to form a scope of works for a GMP construction management contract (in fact the finding was that the scope of works identified in the GMP Documentation for a GMP with the scope to be identified in more detail in the full documentation to be later completed), was that the trial judge should not have concluded that the GMP Documentation did not have to be appropriate for tendering for a fixed price contract. The Council submitted that the trial judge was in error in failing to equate a GMP construction management contract with a fixed price contract and in failing to hold that the GMP Documentation was therefore inadequate. 119 For reasons I have explained, even if there were the equation it would not follow that Davies had engaged in misleading conduct. But I do not think error has been shown in the trial judge's conclusion. 120 The Council submitted that Mr Davies himself had agreed, with some qualifications not impacting on the force of the concession, that the two kinds of contract were to be equated, because each had a maximum price and the tenderer therefore had to have documentation adequate for reliable tendering. The submission took Mr Davies' evidence out of context. Mr Davies did agree that the GMP Documentation was insufficient to enable tenderers accurately to price the works for a fixed price contract, but maintained that it was sufficient for pricing the works for a GMP construction management contract. As the trial judge observed, Mr Davies' concession was as at the end of the contract, and there was a difference as at their beginnings. Further, it is necessary to have regard to the GMP construction management contract in the present case, one under which to the knowledge of all concerned the design remained to be finalised and the documentation would undergo development. In the circumstances in which Davies was placed there could not be fully developed documentation. 121 Nor did the Council gain assistance, as it submitted, from any qualification in cross-examination to Mr Bullen's evidence in his report that design documents fully describing the works were not necessary in order to have a guaranteed maximum price. Mr Bullen agreed that a fixed price contract and a GMP construction management contract with a defined scope of work both had promises to build what the scope of work defined. As the trial judge observed, his agreement that for the former kind of contract an architect should prepare documentation as for a fixed price contract, defined as sufficiently developed for accurate tendering and for reliable fixed price contracting, was on assumptions which did not take account of Davies' position in February 1999. Davies had suggested that the design be fully developed prior to tendering, but the Council had declined. Davies was not instructed until later to proceed with full documentation. The Council knew there would be development of the drawings and specifications, and in the contract with Austin specifically provided for it. 122 In short, what an architect should do and the adequacy of what the architect does requires consideration of the circumstances. Across the board equation of documentation for tendering for a fixed price contract and for tendering for a GMP construction management contract may be an ideal, but not a necessity. In a contract for a fixed or maximum price the risk that the cost of the works will exceed that price ordinarily falls upon the contractor. Subject to the terms of the contract, in a contract which, as in this case, provides for development of the documentation in the course of the works, the risk that the development of the documentation will increase the cost of the works falls on the contractor. While no doubt tenderers for a GMP construction management contract would prefer to tender on full documentation, in their own interests, they will ordinarily know, and in this case they did know, that development will occur, and should allow for the risk in their tender. It is not correct to equate such a contract with a fixed price contract on fully developed documentation. 123 The Council further submitted that the trial judge was in error in failing to accept and act upon the evidence of Messrs Poiner, Alden, Chow and Wyles, described generally as evidence that the GMP Documentation was inadequate for fixed price contracting. It took the Court extensively to the evidence of the experts. For example, in Mr Alden's opinion the structural steelwork drawings were such that a reliable estimate of the extent or cost could not be made, any contract based on them "would be potentially subject to significant variation", and the construction manager could only offer a price with a large contingency in its costing. He thought the incompleteness of the documentation was obvious. Mr Poiner considered that the works could be the subject of estimation, which as I have said was not in dispute, and (in my summary) that a construction manager might not include a sufficient allowance for the development of the documentation and there was a risk that there would be cost increases which it would be entitled to claim beyond the fixed price. 124 Unless there was equation of a GMP construction management contract with a fixed price contract, evidence of inadequacy for fixed price contracting did not establish inadequacy for contracting under a GMP construction management contract. This, in my view, is what the trial judge meant when she said at [218] that there was no evidence suggesting that the GMP Documentation, although incomplete, was inadequate to form a scope of works for a GMP construction management contract; she went on to explain the difference in the kinds of contract. More particularly, evidence of this kind did not establish inadequacy when the design remained to be finalised and the documentation was to be developed. The tenderer had to make an allowance in its tender, and it was for the principal to tie the tenderer down to the contract price. 125 There may be a question of the architect making the principal aware that development of the documentation could give the tenderer grounds to claim, or provoke it groundlessly to claim, entitlement to an increased contract price; that is another matter. The Council's principal submission should not be accepted. 126 There was regrettable obscurity in the Council's further submissions on appeal in relation to misleading conduct. It eschewed a warning case, but its submissions went in part to such a case. A deal of the evidence of Mr Poiner to which the Council referred the Court was concerned with the architect advising the client that the GMP Documentation was incomplete, that the works could not be accurately costed, and that the construction manager could claim beyond the guaranteed maximum price. As I have said, the Trade Practices Act case was determined with some regard to the Council's awareness of the risk in proceeding as it did. One ground of appeal was that the trial judge failed to make findings as to the Council's knowledge of incompleteness of the GMP Documentation, although it was presented as a ground going to causation. 127 A misleading conduct case is not the same as a warning case, and I consider that as the hearing of the appeal progressed the submissions extended to misleading conduct because the Council was left unaware, when it should have been made aware, that the GMP documentation was such that the construction manager might claim entitlement to an increased guaranteed maximum price. Despite occasional reference to the Council's limited case at trial, I understand Davies to have met the wider submissions. Thus it said in written submissions in reply, albeit in relation to causation of loss - "What the Council had to show, but did not, was that there was a particular risk of out of scope design development, that it was ignorant of that risk, that the Respondent engaged in misleading and deceptive conduct in producing its design without disclosing the risk, that the risk was encountered and explained the increase in costs, that something could have been done with the incomplete design to avoid such risk and that with proper disclosure the Council would have successfully directed that it be attended to." 128 It is convenient at this point to diverge to an evidentiary matter. Some of the parts of the experts' reports to which the Council referred were said under one of the grounds of appeal to have wrongly been ruled inadmissible. Two subparagraphs in a report of Mr Poiner and ten sub-sub-paragraphs in the report of Mr Alden were identified. 129 At the hearing of the appeal it appeared that the Council did not maintain the ground of appeal that the parts of the reports had wrongly been ruled inadmissible. Counsel for the Council said to the effect that there were already in evidence opinions "to the same extent", and seemed to accept that the rejected parts were "a re-statement and emphasis of inadequacies" and that "every one of those opinions is the same as opinions elsewhere that are in and if we don't get home on those, this is not going to get me home either". 130 However, in written submissions in reply the Council said that it "maintains its ground of appeal 1 as to wrongful rejection, in the event that it does not otherwise succeed on liability". The following sentence asserted that the rejection of the evidence was erroneous because it "properly complied with Makita requirements". This was odd. While Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 3; (2001) 52 NSWLR 705 appears to have been raised at the trial, it does not seem to have been the basis for the rejection. 131 I do not propose to tabulate in these reasons all the rejected parts of the reports. Most were rejected, correctly, for reasons to do with form or bad expression, for example a structural engineer stating what would be apparent to all professionals, but with leave to call oral evidence on the matter in question. The Court was not taken to where the leave had been exercised, but that was a matter for the Council at the trial. Where leave was not given, the parts of the reports were correctly rejected. 132 The rejected sub-sub-paragraph on which the Council placed particular emphasis was para 5.4.16 of Mr Alden's report, in which he said that he "believe[d] that the Principal should have been warned that there was a real risk of a significant project cost increase because of the very early stage of the development of the design documentation, at the time of the CM contract award". It was rejected after the trial judge suggested to counsel for the Council, and he agreed, that it was for the trial judge to decide whether a warning should have been given, and counsel then suggested that what Mr Alden said was "a reflection of his view of the inadequacy of the documents". The rejection was correct. Counsel said that he did not wish to have reasons for it. 133 The ground of appeal, so far as maintained, should not be upheld, and I do not enter upon whether upholding it would mean a new trial and the operation of Pt 51 r 23 of the UCP Rules. 134 I have earlier referred to the trial judge's regard to Mr Poiner's evidence in relation to adequacy to form a scope of work, and have set out her Honour's references to Mr Poiner's evidence in connection with the warning case. 135 Mr Poiner gave evidence that the GMP Documentation could not be the subject of accurate estimation, by which he meant reliability in the prospective cost. His evidence included that an architect, knowing this and that the estimate was to be the basis of a GMP contract, would advise the client or at least be reasonably satisfied that the client was aware that the works could not be accurately costed, and that extension of the scope of works could entitle the construction manager to claim further costs and charges beyond the guaranteed maximum price and of "the danger of cost increases and hence, of the inherent dangers of such a contract". 136 The nub of Mr Poiner's opinion can be seen in a passage from one of his reports dealing with blockwork - "The drawings' inadequacy, that is their incompleteness, left the Council open to claims by Austin that the GMP scope of works had increased, leading to high and undeniable blockwork costs and additional management fee charges. I repeat the opinion I expressed earlier herein at paragraph 3.9 that a competent architect (such as the Architect), acting in accordance with accepted practice standards in circumstances such as those under report and seeking to guard its client's interests, would need to be satisfied that the client was aware of the risk of claims by Austin that the GMP scope of works would increase if drawings (such as the Building Contract Drawings - Architectural) were to be used as a basis of a guaranteed maximum price building contract such as the Building Contract. Failing that satisfaction the architect would advise its client against entry into the contract." 137 The import of Mr Poiner's evidence was that the client may not know that the incompleteness meant that the works could not be accurately costed, and of risk in maintaining a guaranteed maximum price. He agreed that it was important in what proper architectural practice required to consider the architect's knowledge of the contractual guarantee. He did not believe, however, that the architect would "accept as inevitable that his clients, however they were constituted, or his clients' legal advisers, whatever experiences they had, would necessarily be in a position to judge the completeness or otherwise of architectural documents and other documents, engineering documents". 138 In cross-examination Mr Poiner said that, if the architect was reasonably satisfied that the client knew about the incompleteness, it was not necessary to warn about incompleteness. His evidence included - "Q. So ultimately is your opinion this, that a construction manager who produced a figure for a guaranteed maximum price might not, in producing that figure, properly include within its estimate a sufficient allowance for the way in which the design might be completed? A. Yes. Q. And is that really all you are telling her Honour your expert opinion is? A. Yes. Q. And insofar as the architects are concerned is your opinion only this, that Michael Davies & Associates ought to have informed the council that because the design was incomplete there might be an error in the construction manager's production of a figure for the guaranteed maximum price? A. Of a figure for the cost of the building. Q. But relatively to a figure for the cost of building that was going to be stipulated for as a guaranteed maximum price? A. I don't know when Michael Davies knew that. Q. Sorry? A. I don't know when Michael Davies knew that the costs which were being advanced by competing builders and later just Austins were to be translated into a sum within a guaranteed maximum price contract." 139 He also said - "Q. Are you aware, Mr Poiner, that Michael Davies Associates in or about early 1999 advised the council that it ought to proceed to finalise the design before it entered into any contract for the project? A. No, I'm not aware of that. Q. Do you accept that if the council, notwithstanding that advice, elected to proceed nevertheless with construction management with a GMP that has a material bearing upon the opinions that you've expressed? A. It would. Q. Because you would regard that advice, wouldn't you, as an appropriate caution for an architect to give to its client in this context? A. I do indeed. Q. Are you aware that Michael Davies Associates, after the receipt of the Austin tender response which included a GMP of $16.9 million, told the council that that figure was contrived because it made no allowance for any risk? A. I'm not aware of that. Q. Again may I take it you regard that as being material to any proper assessment of what it was that Michael Davies Associates ought properly have advised about or warned of? A. I think that's sound advice that he gave. Q. And a proper discharge of the architect's duty? A. Yes." 140 The Council submitted that the trial judge was in error in saying (at [210]) that "[n]one of the experts gave evidence that there was a 'real risk of a significant increase in the cost of the Project because of the very early stage of the development of the GMP Documentation'". Her Honour's reference to "real risk" came from the cross-claim. There was evidence of potential and danger, but it was correct that the evidence did not go so far as real risk, which was what her Honour meant. 141 The question is whether there was misleading conduct. The GMP Documentation was incomplete; without resorting to the rather unhelpful adjective "inadequate", it did not permit of an accurate tender estimate. That, however, did not mean that there was misleading conduct in Davies issuing the GMP Documentation for the fresh invitation to tender. All the circumstances of Davies' conduct had to be taken into account. It was not necessary that Davies intended by its conduct to mislead, nor was it either necessary or sufficient that the Council be misled by its conduct; there had to be a real and not remote prospect of the Council (which was effectively the sole entity relevantly likely to be affected by the conduct) being led into error. That was a matter for the court. 142 The incompleteness of the GMP Documentation being obvious, Austin and the other tenderers knew that it was subject to development, not only if the various changes flagged in the third post-tender notice and the revised tender form were made but also in its development for construction, and had to allow for that in their tenders. There was the possibility that their allowance would not match additional costs, but if the GMP construction management contract were appropriately framed that would be their risk. 143 The Council was well aware that the GMP Documentation was incomplete. In his evidence in the arbitration Mr Brownlee agreed that he appreciated that only about seventy per cent of the design work had been done and that a number of design developments remained, and while Ms Rosser did not have a clear recollection her awareness must have been similar. Davies had told the Council that the extension of the Police date to the beginning of June 2000 gave more time for full documentation prior to calling tenders. According to Mr Davies, he told Mr James that "he could use the time to fully document the project and then call traditional tenders", and Mr James replied that Mr Brownlee "preferred the flexibility of the construction management methodology". According to Mr Brownlee, Mr Davies suggested that the Council would "be better advised to actually complete the plans and specifications before contracting for the project", and that it would be "better for the Council to actually finish the design before contracting", but Mr Brownlee declined because of the political implications of going back to the Council. 144 The Council as the relevant entity likely to be affected was not inexperienced or gullible (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198-9 per Gibbs CJ). Mr Brownlee was a qualified engineer, in a responsible position. From his evidence in the arbitration, he appreciated that change in the scope of works from that of the GMP Documentation could increase the cost to the Council - "Q. So you thought, did you, that even if you had a GMP of $16.9m, there would be circumstances in which the council might have to have resort to a contingency sum? A. Unforeseen circumstances at that time. Q. But is this right, that you did think that even if there was a GMP of $16.9m, that there might be circumstances in which the council would be called upon to use the whole or some part of its contingency amount? A. For unforeseen circumstances. Q. Well, do you mean by unforeseen circumstances the inclusion of works beyond the scope of works that Austin were required to tender upon? A. Yes. Q. So, is this right, that as you understood things in March of 1999, if there was any addition to the scope of the works, that addition to the scope of the works would be required to be met out of the contingency sum? A. Yes. Q. And if it was required to be met out of the contingency sum, then the total cost to council of the works might be in excess of $16.9m? A. In that hypothetical situation." 145 If he was not already aware of it, Mr Brownlee was told at the end of January 1999 about tenderers' allowances for risk. He was told on 11 February 1999 that Mr Davies thought Austin's price was contrived and allowed for no risk at all. It did not need to be spelled out that development of the GMP Documentation might bring additional costs for which tenderers, and Austin in particular, had not allowed. The safeguard of a firm project cost was a contract which properly bound the construction manager to the guaranteed maximum price. The contractual arrangements were to be reviewed by the Council's legal advisers, and in fact the Council caused the preparation of the contract without involvement of Davies. It provided for further development of the drawings and specifications and variations in the manner I have described, and the solicitor's letter to the Council contemplated increase in the guaranteed maximum price as a result of variations as well as reduction. 146 In the circumstances in which Davies was dealing with the Council, I do not think that there was misleading conduct on its part. Mr Poiner pointed out that the client would not necessarily be in a position to judge the incompleteness of the tender documentation, in context meaning the potential for development of the documentation to vitiate the guaranteed maximum price, but the particular circumstances were such that an honest and reasonable person in Davies' position could reasonably regard the Council as aware of the potential, and as responsible for a contract holding the tenderer to the guaranteed maximum price with the necessary development of the documentation. 147 I do not overlook the ground of appeal that the trial judge failed to make factual findings in relation to the Council's knowledge of incompleteness of the GMP Documentation. The Council referred to the assertion in an affidavit sworn to the assertion in an affidavit sworn by Mr Brownlee that "I knew that the GMP Documentation required design development, but I understood this to mean design development in relation to possible savings only". It submitted that it was not put to Mr Brownlee that his awareness went further, to any particular extent of incompleteness or that the state of completeness would "invariably" (I think meaning inevitably), lead to an increase in the cost of the project, and that the trial judge failed to make findings that he had no awareness beyond that he asserted. 148 The trial judge's findings appear in particular in the paragraphs I have set out in relation to the warning case. Her Honour did not expressly deal with Mr Brownlee's assertion that he understood that the design development would be in relation to possible savings only. The assertion could not properly be accepted in the light of evidence which her Honour did accept and the evidence as a whole, and in my opinion was implicitly rejected. 149 Taking into account all these matters, and judged by regard to what had passed between the parties, the knowledge of the Council, Mr Davies' warning about Austin and the circumstantial relativity of the notion of "inadequacy", Davies did not engage in misleading conduct. There were in the circumstances no misrepresentations, and Davies' conduct as a whole was not misleading conduct.

Auburn Council & Anor v Michael Davies Associates Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (68 paragraphs)

Parties

Cases Cited (12)