Bayside Council v V Corp Constructions Pty Ltd

Court of Appeal (NSW)|2017-03-27|Before: Basten JA, Macfarlan JA, Ward JA

Background

In October 2004 the Council granted consent for the demolition of existing buildings and the construction of a four storey mixed use development at 1-3 Elizabeth Avenue, Mascot. Clause 33 in the schedule of consent conditions was in the following terms: "33 Prior to the issue of a Construction Certificate, the applicant shall enter into a Developer Agreement to be prepared by Council's Solicitor's [sic] at the applicant's expense to provide for the: (a) existing above-ground power cables in the street adjoining the site to be replaced at the applicant's expense by underground cables to the standards of Energy Australia; and (b) replacement of existing street lights with new light standards and/or provision of new lights in accordance with Council's Guidelines. The necessary works shall be completed prior to the issuing of an Occupation Certificate."
Why the condition required a separate agreement was not explained. Nevertheless, that part of condition 33 was complied with and a deed was entered into between the Council and the respondent on 30 May 2006. The deed was not limited to the terms of condition 33, but that condition was set out in full in Recital E.
Clause 1 of the deed dealt with a separate matter, involving the subdivision of the land and the dedication to the Council of a strip 1.5 metres wide across the full frontage on Elizabeth Avenue, for a footpath. The absence of a footpath on either side of Elizabeth Avenue prior to the development was significant in relation to the placement of the electrical cables underground.
The deed addressed the requirements of condition 33 in the following provisions: "2.1 The Company further covenants and agrees with the Council that contemporaneously with the development of the Development Consent [sic]: (i) it shall at its expense procure replacement of existing above ground power cables in the street adjoining the Subject Land with underground cables in accordance with the standards and requirements of Energy Australia; (ii) procure at its expense replacement of existing street lights adjoining the Subject Land with new light standards [sic] and/or provision of new lights in accordance with the Council's current guidelines relative thereto; 2.2 The Company acknowledges that the works specified in clause 2.1 hereof must be completed to the satisfaction of the Council prior to issue of an Occupation Certificate for the development."

(a) case at trial

The claim pleaded against the builder was that, by failing to undertake "the works" as required by cll 2.1 and 2.2 of the deed, it was in breach of its contract with the Council which thereby suffered loss. Paragraph 7 of the statement of claim identified the obligation of the builder with respect to "the works" in the following terms: "(a) at its expense, to replace the existing above-ground power cables in the street adjoining the site with underground cables to the standards of Energy Australia; (b) at its expense to replace the existing street lights with new light standards or new lights or both in accordance with [the Council's] guidelines". This formulation was not entirely in accord with the terms of the deed.
In its defence, the builder denied that it was in breach of contract, but also alleged that there had been agreement to do other work and make the payment of $10,000 in lieu of carrying out "the works" as identified in the Council's claim. That was pleaded both as a separate agreement and as a variation of the deed; there were also claims based on the same conduct, relying on equitable estoppel and conventional estoppel.
The first question considered by the trial judge was whether the builder was in fact in breach of its obligations under the deed. The judge found that there was no breach because the obligation was to procure the placement of power cables underground, "in accordance with the standards and requirements of Energy Australia". Because Energy Australia had refused to approve the work, which could not lawfully be undertaken without its approval, the trial judge concluded that there was no breach of the obligation to procure the work, which was subject to an express condition, which was not fulfilled, through no fault of the builder.
The trial judge found there was no breach on one further basis. That focused on the language of cl 2.2 that the work specified in cl 2.1 "must be completed to the satisfaction of the Council". Referring to the letter of 12 June 2007, [3] the judge concluded that an officer of the Council with authority to determine compliance with conditions of the consent had indicated satisfaction with the work undertaken in lieu of placing the cables underground. On one view, that letter was relevant to the defences based on variation of the terms of the deed and conventional estoppel. In any event, it is not necessary to explore whether the letter justified dismissal of the breach of contract claim on the basis that there had been no breach, as the appeal must be dismissed for other reasons.
The builder presented alternative cases at trial, the first of which relied upon the variation of the deed by a further agreement, pursuant to which the builder made the payment of $10,000 and undertook further work which was not required within the terms of the development consent. The judge accepted that there had been a variation in the deed by an agreement which prevented the Council from suing under the deed. [4] The other alternative, accepted by the trial judge, asserted that there was a conventional estoppel, precluding the Council from relying on the terms of the deed, cl 2.1. Again, it is not necessary to explore these findings.

(b) case on appeal

Ground 1 in the notice of appeal contained four limbs: "1 Her Honour erred in: (a) construing the obligation under clause 2.1(b) of the Deed dated 30 May 2006 between the appellant and the first respondent … as meaning that if Energy Australia would not do the work referred to therein, there was no obligation on the part of the first respondent to procure that work to be done: [128], [163]; (b) in holding that the first respondent was not in breach of condition 33 of the development consent …: [129]; (c) in holding that Energy Australia refused to perform or sanction the work referred to in clause 2.1 of the Deed and clause 33 of the Development Consent: [129], [163]; (d) in permitting the first respondent to raise as a defence to the appellant's claims that the first respondent was in breach of the clause 2.1 of the Deed, the defence that Energy Australia could not or would not do the work identified in clause 2.1: [128]-[129], [163]."
The first limb alleged a misconstruction of cl 2.1 of the deed on the part of the trial judge; that ground, read in isolation, must be rejected. Pursuant to s 65 of the Electricity Supply Act, Energy Australia was required to undertake the work to place the power cables underground or to grant its approval to a contractor undertaking that work. It is true that the language used in cl 2.1(i) of the deed assumed that Energy Australia would give its approval, but would impose conditions ("standards and requirements"). However, it is also consistent with the language of the deed that if Energy Australia required that the work not be done, it could not be done and the failure to procure the work to be done would not constitute a breach of the builder's agreement. On one view that is the effect of the express reference to the need to comply with the "requirements" of Energy Australia.
In dealing with a deed of release, in Bank of Credit and Commerce International SA v Ali, [5] Lord Hoffmann, after noting that the language of the document was "very wide", continued: "So I think that anyone who was simply reading the document without preconceptions would accept that the draftsman was not leaving deliberate gaps. It does not however follow that the language was to be read completely literally. There may be limitations in scope to be inferred from the background, limitations from context which the draftsman may have thought too obvious to mention." Lord Hoffmann continued, by way of explication of statements as to admissible background material made in Investors Compensation Scheme Ltd v West Bromwich Building Society: [6] "It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective)".
An undertaking to carry out works does not need to be described as an undertaking to carry out works "if they can lawfully be accomplished". Some things may be understood as encompassed within general language. If not express, such a limitation is at least consistent with the tenor of the contract, is the only reasonable and equitable solution to the refusal of Energy Australia to give its approval, and thus makes sense of the contractual obligation. It must be assumed that the parties knew that no such work could be done without the approval of Energy Australia. That circumstance was analogous to an agreement to lease land, where the lease requires approval of a Minister. [7]
On another view, if the contract does not expressly so provide, the implication of a term to that effect is both necessary and obvious. It can be accommodated by implying the words "with the approval of and" before the words "in accordance with the standards and requirements of Energy Australia"; that would exclude from the scope of the obligation work which would be unlawful and would render the obligation legally effective. Such an implied term would satisfy the requirements of BP Refinery (Westernport) Pty Ltd v Shire of Hastings. [8]
The second limb challenged the finding that the builder was not in breach of condition 33 of the development consent. The logic underlying that challenge was not self-evident. The Council sued the builder for breach of contract; it did not (and could not in the District Court) seek to enforce a condition of the development consent. It is true that the trial judge made a finding that the refusal of Energy Australia to perform or sanction the work meant that the builder was not in breach of condition 33, but nothing seems to have turned on that conclusion.
In the course of argument on the appeal, condition 33 was called in aid of a construction of the deed which made it unconditional. However, condition 33 did not in terms impose an obligation on the builder to procure the doing of the work (as the deed did), but rather obliged the builder to enter into the deed. It provided two temporal conditions. The first was that the deed be entered into prior to the issue of a construction certificate; the second was that the works were to be completed prior to the issue of an occupation certificate. Although the language of the work required to be done did not entirely accord with the language of the deed, nothing was said to turn on that circumstance. In short, beyond the proposition that condition 33 explained how, why and when the deed came to be executed, it provided no assistance with the construction of the deed. Whether it was complied with or not may have had relevance to the issue of an occupation certificate, but that was a separate question. Accordingly, the second limb of ground 1 did not assist the Council's case.
The third limb in ground 1 took issue with the factual finding that Energy Australia had refused to perform or sanction the work, [9] or, as the trial judge later expressed it, had "determined that the contracted work could not be done." [10] According to the written submissions, this finding turned on three letters from Energy Australia to the Council. The first point raised in the written submissions was that the evidence did not demonstrate that Mr Vigliante had seen the correspondence. That was beside the point.
The second point raised was that the letters provided "no factual basis for the finding that Energy Australia could not or would not do the works". The critical passages from each of these letters have been set out above: the only reasonable inference to be drawn from that correspondence was that accepted by the trial judge. At least, that must be the preferred inference on the probabilities. The contrary submission, and the third limb of ground 1, must be rejected as untenable.
There remained a fourth complaint in ground 1, namely that the trial judge erred in allowing the builder "to raise as a defence to the appellant's claims … that Energy Australia could not or would not do the work identified in cl 2.1". Although not expressly identified as such, this was explained in submissions as a "pleading point".
The plaintiff's own pleading in the District Court left something to be desired. It stated that the builder "has failed to undertake the works", the works being identified in terms which did not reflect the language of condition 33 or the deed. The plaintiff did not otherwise plead what it said was required under cl 2.1 of the deed. The builder pleaded, relevantly, that it was not in breach. Clearly, both the construction of the deed and its application to the circumstances of the case were left for determination at the trial.
Nor could it be said that the appellant was taken by surprise in relation to the contention that Energy Australia had refused consent to the proposed works. First, the agreement with the Council was pleaded in terms which adopted the Council's own letter of 15 May 2007, referring to the fact that Energy Australia was not prepared to permit the work to be done. [11] Secondly, the defence pleaded that condition 33 was "void as it was not capable of being fulfilled." [12] Thirdly, the correspondence between Energy Australia and the Council was all tendered and admitted without objection in the course of the trial. [13]
Further, reference was made in submissions on the appeal to the arguments which had arisen before the trial judge as to whether (a) the Council was taken by surprise by this evidence and the inferences that might be drawn from it, (b) the builder should be required to amend its pleading, (c) the Council might need to reopen the evidence, [14] and (d) the Council might be able to adduce further evidence to contradict the clear statements in the letters as to whether the work could be done. In relation to the last point, it was unclear that any evidence was proposed that would relate to the opinion held by Energy Australia in 2007, as opposed to what it thought might be feasible in 2015. In any event, the letters were not withdrawn, the defence was not required to be (nor was it) amended, no adjournment was sought, and the trial judge, justifiably, reached the only available conclusion on the material before the Court.
Finally, it may be noted that counsel for the appellant accepted that the two requirements in cl 2.1 (placing the power lines underground and replacing the street lighting) were parts of the same obligation, so that if there were no breach of the obligation to place the cables underground, no separate obligation arose with respect to the street lighting. [15]
Ground 1, in all its parts, must be rejected. The result is that the appellant established no breach of cl 2.1 of the deed by the builder. Ground 5, which added nothing to ground 1, must also be rejected. There is no need to address the independent defences based on estoppel, or the grounds challenging the findings with respect to them.

Loss and damage

The trial judge concluded that the Council suffered no loss in any event. Ground 6 challenged that finding; however, it was correct. The Council's claim was for an amount necessary, in current money value, to place the whole of the power cabling underground and replace the street lighting. If Energy Australia were not willing to countenance that work, it could not be said that Council had suffered any loss, because the expenditure would not take place.
There was a further point, namely that the Council had in fact obtained a public benefit in the form of the varied improvements made by the builder, which involved paving instead of footpaths and improvements to the kerbing and guttering. [16] At the very least, in order to prove loss the Council needed to establish that it had not received any such additional benefits, or, if it had, they were required to be valued and set off against the amount claimed. That would have been consistent with the position of the Council in agreeing that the $10,000 should be repaid, acknowledging that it was a benefit which had been obtained in lieu of compliance with the terms of cl 2.1 of the deed. That step was not undertaken.
There being no obvious error in the approach of the trial judge in this respect, the claim was properly dismissed on that further basis.

Claim against certifier

The second respondent was the private certifier appointed to exercise the functions of a certifying authority with respect to the development. The particular complaint was that he had issued an interim occupation certificate in circumstances where condition 33 had not been complied with.
The loss and damage alleged as a result of this breach of duty was the same as that relied upon with respect to the builder, namely the cost of placing the cables underground and constructing new street lighting.
The trial judge dealt with this claim on the assumption that the certifier owed a duty of care to the Council. She concluded that there was no breach of duty because condition 33 in the development consent had been complied with to the extent that it could be complied with and the obligation had been varied so that the Council accepted alternative benefits in lieu of those required under condition 33. Council challenged those findings.
It is not necessary to consider those grounds of appeal; the case against the certifier must fail on the basis that, even if the issue of the interim occupation certificate involved a breach of duty, no loss was shown to result.
In order to demonstrate loss, the Council had to prove that, had the interim occupation certificate not issued, it would have taken steps to ensure that the builder completed its obligations under condition 33. The evidence did not support any such finding. For reasons already given, Energy Australia did not permit compliance with the express terms of condition 33 in 2007. Further, the correspondence between the Council, Energy Australia and the builder demonstrated that the Council, being aware of the difficulties, did not seek to require compliance with condition 33, and was well aware it had not been complied with. Indeed, as counsel for the certifier submitted on the appeal, the issuing of the interim occupation certificate had no effect on the ability of Council to enforce the condition. The trial judge was correct to reject the claim on the basis that no loss had been demonstrated.
If, as was put to counsel for the appellant, the only loss it possibly suffered was the loss of an opportunity to bargain with the builder over what steps should be taken with respect to the power lines, that was not the basis of a claim at trial; the claim was only for the cost of actually doing the work.
In these circumstances, the appeal with respect to the claim against the certifier should be dismissed. It is not necessary to consider the arguments put by counsel for the certifier that there was in fact no breach of the duty of care owed to Council.

Conclusion

There are, in effect, two appeals before the Court, one with respect to the claim against the builder and the other with respect to the claim against the certifier. Both appeals should be dismissed; the Council must pay the costs of both respondents in this Court.
The Court should make the following orders: 1. Dismiss the appeal brought by Bayside Council against the judgment of the District Court given on 31 May 2016 dismissing the Council's claim against V Corp Constructions Pty Ltd. 2. Dismiss the appeal brought by Bayside Council against the judgment of the District Court given on 31 May 2016 dismissing the Council's claim against Paul Aramini. 3. Order that the Council pay the costs of both respondents of the proceedings in this Court.
MACFARLAN JA: I agree with the orders that Basten JA proposes and with his Honour's reasons for judgment.
WARD JA: I agree with Basten JA but would make the following observations.
Insofar as [39]-[42] of his Honour's reasons might be read (though I do not suggest this was his Honour's intention) as drawing a distinction between a process of interpretation (whereby one construction is said to be the "only reasonable and equitable solution" to the refusal by a third party (here, Energy Australia) to grant the requisite approval) and a process of implication (whereby a term is to be implied in law that a promisor's (here, the first respondent's) obligation was defeasible upon failure by a third party to grant the requisite approval), I should note that I would not base my conclusion on the former. In other words, I would not interpret the contractual stipulation from the perspective of what would be regarded by the parties as a reasonable or equitable solution to the problem encountered in the performance of the contract.
I agree with Basten JA that in the present case the requirements for the implication of terms as set out in BP Refinery may be seen as having been satisfied. The promise made by the first respondent to do the work in question was clearly premised on the understanding that such work would be lawful insofar as it was to be "in accordance with the standards and requirements of Energy Australia" and it could not be suggested that works that were not lawful (because they were not done with the approval of Energy Australia) would be in accordance with its standards and requirements.
If the outcome is to be reached not by implication of a term in accordance with BP Refinery but rather by general principles of contractual interpretation, I would express my conclusion as follows.
As Basten JA has noted (at [41]), both the promisor and the promisee in the present case must be assumed to have known that no work could be done without the approval of Energy Australia. This is not a case where the court would be disregarding unambiguous language that a promisor would undertake work irrespective of its legality as a consequence of a denial of approval by a third party. Construed as a whole, the contract does not evince an intention to allocate the risk of non-approval by Energy Australia to the first respondent, such that the first respondent was, in effect, promising to compensate the promisor for its loss in the event that approval were denied. Nor is this a case where one construction may seem commercially unsound and the court is being asked, in effect, to re-write a contract (Cushman & Wakefield (NSW) Pty Ltd v Farrell [2017] NSWCA 24 at [71]; Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]). This is a case in which one party promised to undertake work in accordance with the requirements of a third party from whom both parties knew approval would need to be sought, which approval both parties must be taken to have appreciated was essential for the promisor's performance to be lawful. As Basten JA notes (at [11]), cl 2.1 provided that the first respondent would "procure replacement", the reason being that interference with the overground power cables without the authority of Energy Australia would be unlawful.
In such circumstances, the present case is one in which at least two interpretations of cl 2.1(b) are possible: first, that the first respondent had an absolute obligation to perform even if approval were denied, such that the first respondent would be liable in damages if it did not perform; and second, that the first respondent's obligation was subject to Energy Australia granting approval. In K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) at 320, the following principle is stated: "[w]here the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former construction should be preferred". Support for such an approach may be found in the judgment of Lord Hoffmann in Investors Compensation, as quoted above (at [40]) by Basten JA. The principle was also endorsed in the dissenting judgment of Mason P in Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 at [102]. While Meagher JA and Beazley JA (as her Honour then was) disagreed (at [113]; [122]) with the "legal conclusions" reached by Mason P, I read their disagreement as turning on the precise contractual provision at issue in that case (Meagher JA describing the relevant provision (at [114]) as "perfectly unambiguous"). I read Mason P's remarks (at [106]-[107]) as apposite to the contractual provision at issue in the present case: Later (at [260]) Professor Carter explains that, where a contract cannot be performed without the consent or approval of a third party, or the issue of a licence, one of the parties will usually be subject to an express or implied obligation to obtain the consent, approval or licence. If nothing is said on the standard of duty, the usual approach has been to imply a duty requiring the exercise of care, due diligence and best endeavours. The clearest example of this phenomenon is a contract for sale of land where performance requires a Minister's consent. In Egan v Ross [1928] NSWStRp 101; (1928) 29 SR(NSW) 382 at 387 Harvey CJ in Eq explained that the implication of such a best endeavours proviso may be necessary in order to save an apparently absolute promise from a plea of illegality. He cited an earlier decision of his (Duncan v Mell [1914] NSWStRp 42; 14 SR(NSW) 333 at 339) where he had said: Where a contract for the sale of such an interest is made, and nothing is said about the subject of the Minister's consent, it appears to me it must be implied in such contract that if things are left as they are at that date and the consent of the Minister is refused, the contract would go off. Prima facie it would be the duty of the vendor under such circumstances to procure the consent, that being necessary to complete his power to transfer; but if he does not obtain it, it seems to me it must be implied that the contract goes off....
Accordingly, I would read cl 2.1(b) as imposing upon the first respondent an obligation to do the work, subject to Energy Australia granting approval for the work to be done.
In passing, I note that the present case provides a neat illustration of the way in which, although they remain distinct, "interpretation can shade into implication", as Allsop P (as his Honour then was) and Sackville AJA noted in Gordon & Gotch Australia Pty Ltd v Horwitz Publications Pty Ltd [2008] NSWCA 257 at [36].
For those reasons, I agree with the orders Basten JA has proposed.

Endnotes

Electricity Supply Act 1995 (NSW), s 65.
Statement of claim, par 38.
See [24] above.
Judgment at [133], referring to Berry v Berry [1929] 2 KB 316 at 320 (Swift J, Acton J agreeing).
[2002] 1 AC 251 at [38].
[1998] 1 WLR 896 at 913; Bank of Credit and Commerce at [39].
Butts v O'Dwyer (1952) 87 CLR 267 and cases discussed in OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [130]-[146] (Gleeson JA).
(1977) 180 CLR 266 at 283 (Privy Council).
Judgment at [129].
Judgment at [163].
Second Further amended Defence, par 60A.
Second further amended defence, par 61.
Affidavit of John Vigliante, 11 December 2014, pars 36-38 and annexures.
Trial transcript, pp 147-148, 155, 175-176.
Tcpt, 27/03/17, p 14(15)-(20).
Judgment at [161]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 March 2018

headnote [This headnote is not to be read as part of the judgment] In October 2004 Bayside Council (formerly the Council of the City of Botany Bay) granted consent for the construction of a four storey mixed use development at 1-3 Elizabeth Avenue, Mascot. One of the consent conditions required V Corp Constructions ("the developer") to enter into an agreement with the Council to provide for the replacement of existing above ground power cables with underground cables to the standards of Energy Australia. Under the relevant statute, replacing the cables without Energy Australia's consent would have been unlawful. The Council and the developer entered into a contract on 30 May 2006. On 24 July 2006, Energy Australia wrote to the Council advising it that underground cables were unsuitable for the site. Following negotiations between the Council and the developer, it was agreed that the developer would pay the Council $10,000 in lieu of replacing the cables. On the development being substantially completed, the certifier, Mr Aramini, issued an interim occupation certificate. On 5 July 2013, following correspondence between the parties in which the developer asserted that the terms of the contract had been varied by the payment of $10,000, the Council commenced proceedings in the District Court against the developer for breach of the contract, and against the certifier in negligence for issuing the occupation certificate when the underground cabling works had not been undertaken. Judge Olsson dismissed both claims. The questions on appeal before this Court were whether: (1) given the refusal of Energy Australia to consent to the underground cabling, the developer still had an obligation under the contract to carry out the works; (2) the certifier was negligent in issuing the occupation certificate in these circumstances. The Court (Basten JA, Macfarlan JA and Ward JA) dismissed the appeal and held: In relation to question (1):

It is consistent with the language of the deed that if Energy Australia required that the work not be done, it could not be done and the failure to procure the work to be done would not constitute a breach of the builder's agreement: [39], [68]. Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, discussed; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, discussed; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, discussed; Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279, discussed; Gordon & Gotch Australia Pty Ltd v Horwitz Publications Pty Ltd [2008] NSWCA 257, discussed.
Further, it could not be said that the Council suffered any loss, because if Energy Australia were not willing to countenance the work, the expenditure would not take place: [54]. In relation to question (2):
The case against the certifier must fail on the basis that, even if the issue of the interim occupation certificate involved a breach of duty, no loss was shown to result: [59].

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