Court of Appeal (WA)|2009-12-18|Before: Owen JA

DIPLOMA CONSTRUCTION PTY LTD -v- MARULA PTY LTD [2009] WASCA 229 (18 December 2009)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DIPLOMA CONSTRUCTION PTY LTD -v- MARULA PTY LTD [2009] WASCA 229

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : MARULA PTY LTD -v- DIPLOMA CONSTRUCTION PTY LTD [2009] WADC 1

Building contract - Notice of default served by contractor on subcontractor - Whether notice contained 'details of the default' - Whether subcontractor in default of a 'direction' given by contractor - Meaning of 'direction' - Whether subcontractor had repudiated subcontract

Brenmar Building Co Pty Ltd v University of Newcastle (1999) 15 BCL 467

Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327

Forslind v Bechely-Crundall [1922] SC (HL) 173

FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340

Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303

Hounslow London Borough Council v Twickenham Garden Developments Ltd [1970] 3 WLR 538; [1971] Ch 233

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623

Marula Pty Ltd v Diploma Construction Pty Ltd [2009] WADC 1

Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17

Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671

Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60

Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291

Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620

Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11; [1980] 1 WLR 277; [1980] 1 All ER 571

Yendex Pty Ltd v Prince Constructions Pty Ltd (1988) 5 BCL 74

3 NEWNES JA: This is an appeal against a decision of Commissioner Ley in the District Court allowing the respondent's claim against the appellant and dismissing the appellant's set off and counterclaim: Marula Pty Ltd v Diploma Construction Pty Ltd [2009] WADC 1.

4 The proceedings arose out of a subcontract for plastering work to be carried out by the respondent at a development being constructed by the appellant in Joondalup. It was common ground that the subcontract was terminated before the plastering work had been completed. The appellant contended that it had terminated the subcontract by reason of the respondent's breach. The respondent denied that it was in breach and said that by purporting to terminate the subcontract the appellant had repudiated it.

5 The respondent claimed the balance of money owing to it for the work it had done up to that time. The appellant counterclaimed by way of damages the cost of having another plasterer complete the work.

6 The Commissioner upheld the respondent's claim and dismissed the appellant's counterclaim. The appellant appeals against the Commissioner's decision.

7 The respondent was not represented on the hearing of the appeal and took no part in it.

8 The relevant events as found by the Commissioner were not in dispute on the appeal and the following account is taken largely from the Commissioner's reasons for decision.

9 At the relevant time, the appellant was a registered builder and the respondent was a plastering contractor. In April 2003, the appellant was engaged in the construction of a three-story, multi-unit development in Joondalup. By a subcontract (the subcontract) dated 3 April 2003, made between the appellant and the respondent, the respondent agreed to carry out certain plastering works on units in the development for the total sum of $239,800.

10 The subcontract contained (relevantly) the following provisions:

(a) The [respondent] must perform the Works in accordance with this Subcontract (including directions from [the appellant] to the [respondent] given under this Subcontract) and to the entire satisfaction of [the appellant].

(b) The [respondent] warrants that:

(1) at all times the [respondent] will be suitably qualified and experienced, and will exercise due skill, care and diligence in the performance of the Works;

(e) The [respondent] must do all things required by [the appellant] which are necessary to give effect to and achieve compliance with the terms and conditions of this Subcontract.

...

(a) The [respondent] must perform the Works in accordance with the [appellant's] Construction Program and by the Date for Practical Completion of the Works.

(a) fails to carry out any of its obligations under this Subcontract and fails to rectify the default within 3 days of becoming aware of details of the default (by notice from [the appellant] or otherwise);

...

[the appellant] may, at any time and without prejudice to any other rights or remedies available to it under this Subcontract or otherwise, by notice to the [respondent] terminate this Subcontract.

11 The plastering work involved two stages: the 'float' and the 'set'. The first layer of plaster applied was called the float and the plasterers who applied it were called 'floaters'. The second, outer, layer was called the set and was applied by 'setters'.

12 The respondent commenced work on 14 April 2003. It seems that from an early stage there were difficulties at the site. The respondent complained that building materials and rubbish lying around the site was hampering access to the walls to be plastered and that rubbish and scaffolding in the building posed safety problems. The respondent also complained that there were too many other tradesmen working at the site which made it difficult for the plasterers to work. It complained, in particular, of ceiling fixers working in and around the plastering team. In addition, very wet weather had hampered the plastering work, with water leaking into the units making the walls wet to the point that they could not be plastered. It was not in dispute that the winter of 2003 was unusually wet.

13 The Commissioner found that, despite the respondent's complaints about problems on site, the first evidence of any real difficulties between the parties occurred on 12 June 2003 when the appellant sent a facsimile to the respondent expressing concern that the respondent had sent some of its plasterers to another site for the previous few days. That issue appears to have been resolved.

14 The next difficulty occurred on 11 July 2003. It seems that by that time both parties were becoming frustrated with the progress of the plastering work.

15 On 10 July 2003, the weather was very wet and the site very wet underfoot. Nevertheless, there were four floaters and three setters on site. During the day, Mr DeVincentis, the principal of the respondent, gave Mr Longo, the appellant's site supervisor, a handwritten programme of works to be carried out the next day, Friday 11 July 2003.

16 On 11 July 2003, the weather was again very wet. Although the programme provided to the appellant had indicated that both floating and setting work would be carried out, only three setters came to the site. They left at 10.30 am or 11.00 am to go to Gosnells to collect their pay.

17 That prompted Mr Longo to send a facsimile to Mr DeVincentis on 11 July 2003 complaining about the lack of floaters on site and the early departure of the setters. That facsimile is relied upon by the appellant as a direction to the respondent under cl 4.2(a) of the subcontract and it is therefore necessary to set out the substantive terms of it. They were as follows:

Please be advised the plasterers schedule given to me for Friday 11-7-03 has not been carried out. ie no solid plasterers were on site today & the setting plasterers working in units 37, 38, 42 left site 11.00 am (reason given) they had to go to get their pay from you in Gosnells etc. Clearly a more suitable method should be found. The setters also advise me (Matt) they will be back Monday not Saturday. (original emphasis)

18 Mr DeVincentis sent a facsimile to Mr Longo later on 11 July 2003 complaining about the conditions on the site. Mr DeVincentis asked that other trades working in the units to be plastered be removed when the plasterers were working. He complained that the presence of other trades meant that the plastering work could not be carried out in an acceptable manner and that there was a safety issue with so many tradesmen working in and around one another. Mr DeVincentis said that the appellant had not provided reasonable access to the site as required under the subcontract. He also complained that because of problems with the roof, water was getting into the units making the walls unsuitable for plastering. Mr DeVincentis said the respondent had decided not to continue with the work until access was provided to the units without other trades in the way, so the respondent could carry out the work in a professional and safe manner.

19 It appears that either earlier that day or the previous day, Mr DeVincentis had orally told Mr Longo that he (Mr DeVincentis) and possibly two other plasterers would work on Saturday, 12 July 2003 and he would ask the other plasterers whether they could work on Sunday, 13 July 2003.

20 As it turned out, no-one from the respondent attended the site on 12 July 2003, although the weather was fine. That prompted Mr Longo to send a facsimile that day to Mr DeVincentis complaining that no plastering work had been done. That facsimile is also relied upon by the appellant as a direction to the respondent under cl 4.2(a) of the subcontract and it is therefore necessary to set it out. It was (relevantly) in the following terms:

Further to my site inst [sic] & fax of 11-7-03, I hereby inform you that no plastering work was done today despite your assurance that you would be working Saturday & Sunday. As per your schedule given to me, that means 2 days loss of work in what has been fine weather. We gave you the use of one of our site labourers on Thursday to assist you but one of your men left site at lunchtime, therefore causing my labour to be used for a longer period than intended. We will not be assisting you further with our labour & you will need to arrange whatever labour you need to complete the works. Furthermore you are causing us delays to removal of scaffolding & holding up ceilings & general progress on site. We remind you time is the essence of this contract. (original emphasis)

21 It appears that Mr DeVincentis did not reply. No plasterers attended the site the following day, Sunday, 13 July 2003.

22 On Monday, 14 July 2003, it rained and the site was very wet. A setter attended on site but no floaters. Mr Longo sent another facsimile to the respondent. In it he acknowledged the respondent's facsimile (apparently a reference to the respondent's facsimile of 11 July 2003), saying that the comments in it had been noted and that a reply would be forthcoming in due course. Mr Longo went on to say that certain units were ready for plastering and that the appellant required the respondent to work on 15 July 2003. Mr Longo also asked for the respondent's plastering schedule for the next five days.

23 On the same day, Mr Luca of the appellant sent another facsimile to the respondent. It was in the following terms:

Further to your letter dated the 11/7/03, Diploma deny [sic] that all trades are working in and around one another. Diploma advice [sic] that Safety is of the Highest Standard, [sic] We therefore give you Notice that you are in breach of your Contract, pursuant to clause 8.1 Part A.

You are required to recommence work Tomorrow morning, Tuesday 15th July 2003, [sic] if you do not return to work your Contract will be Terminated. We reserve the right to deduct liquidated Damages and any other Costs that arise from your breach of contract.

24 On Tuesday, 15 July 2003, the weather was fine but the site was wet underfoot. Two of the respondent's setters attended the site but no floaters. The appellant sent a facsimile to the respondent in the following terms:

Thank you for Keeping two Setters on site, but it is imperative that the floaters commence tomorrow as it is causing delay to our Construction Programme.

25 Later that day, Mr DeVincentis sent a facsimile to the appellant in response to the appellant's facsimiles of 14 and 15 July 2003. In the facsimile Mr DeVincentis reiterated that work would not recommence until the respondent's plasterers could enter the units to be plastered without being impeded by other tradesmen, so the respondent could carry out the work 'in a safe and professional manner'. Mr DeVincentis complained that the appellant had not met his previous request and demanded that the appellant advise in writing that the request would be met and adhered to.

26 On the same day, 15 July 2003, the respondent retained a professional inspector from the West Australian Solid Plasterers Association to inspect the plastering work the respondent had done and advise whether, by reason of water damage, it needed to be redone. Later in the day Mr DeVincentis sent a facsimile to the appellant complaining that plastering carried out by the respondent had suffered water damage and would have to be redone. In the facsimile, Mr DeVincentis said that despite Mr Longo having been informed of the problem of water ingress on many occasions, nothing had been done about it. Mr DeVincentis informed the appellant of the inspector's appointment and said that the respondent would not undertake any further plastering work until the inspector had inspected the work that had been done and reported his findings. He said a copy of the inspector's report would be forwarded to the appellant immediately it became available.

27 Later on 15 July 2003, the appellant sent a facsimile to the respondent in the following terms:

Work is to progress immediately. All units are available as per our advice of the 14th July 2003. We require your full workforce to commence work as of tomorrow.

The fact that you have not had a full workforce today is causing a continuing delay to the Construction Programme.

28 The respondent replied a short time later, reiterating that no work would be undertaken until the inspector's report was available.

29 Despite the respondent's facsimiles of 15 July 2003 regarding a suspension of the work, on 16 July 2003 two of the respondent's setters worked on site. The following day, 17 July 2003, one setter worked on site.

30 On Friday, 18 July 2003, no setters or floaters worked on site, but Mr DeVincentis attended the site to measure the work that had been done and the amount of work that needed to be done. The purpose of taking the measurements was to prepare a progress claim.

31 On Saturday, 19 July 2003, Mr DeVincentis sent a facsimile to the appellant noting that tiles had been installed to eradicate the problem of water draining into the units and affecting the plastering. Mr DeVincentis said that the water ingress problem had hampered the progress of the plastering work. He also said that there were ceiling fixers working around the areas to be plastered and that if the plastering work were to recommence this would cause delay and possible safety issues. Mr DeVincentis said that the setters had been instructed to cease work as of Thursday, 17 July 2003 and not to do any further work until these issues were resolved. He went on to say that setters would recommence work on Monday, 21 July 2003 because it appeared they could carry on their work on some units unimpeded. Mr DeVincentis said he understood that progress must be kept on schedule but that working under the conditions on site caused delays. He said the respondent could finish plastering the remaining units in five to seven working days if they could work unimpeded.

32 On Monday, 21 July 2003, two setters from the respondent turned up to work on site (ts 814).

33 That day the appellant sent a facsimile to the respondent in (relevantly) the following terms:

1.0 You have failed and defaulted as required by clause 8.1 of the Sub Contract to carry out the obligations under the Sub Contract referred to in our letters of 14/7/03, 15/7/03 and 15/7/03 including:

(i) in accordance with the subcontract;

(ii) in accordance with the above directions;

(iii) to our entire satisfaction;

(b) your failure to exercise due skill, care and diligence in the performance of the works as explained in the above mentioned notices.

2.0 You have failed to carry them out and rectify such defaults within 3 days of becoming aware of such default.

3.0 As a consequence of the above, notice is hereby given that we terminate the sub contract under Clause 8.1 and otherwise, according to our rights, without prejudice to any other rights or remedies available to us under the subcontract or otherwise.

34 The appellant arranged for another plasterer to attend the site on 21 July 2003 to measure and prepare a quote to complete the remaining plastering work. The replacement plasterer commenced work the following day. None of the respondent's workers attended the site after 21 July 2003.

35 On 22 July 2003, Mr DeVincentis sent the appellant an invoice for the respondent's unpaid work up to that point. The invoice claimed $20,611 for the balance outstanding for works on the original contract and sums representing the unpaid balance of 'extra' works and variations. The invoice also claimed the retention bonus which was held by the appellant. The total amount claimed was $51,622 but it was reduced to $49,642 at trial ([50]).

36 On 22 July 2003, the respondent wrote to the appellant denying that it had breached the subcontract and accepting what it said was the appellant's repudiation.

37 On 18 August 2003, the respondent commenced proceedings against the appellant, claiming the amount outstanding for the work it had carried out under the subcontract.

38 The appellant counterclaimed, alleging that it had lawfully terminated the subcontract pursuant to cl 8.1(a) by reason of the respondent's breach, or alternatively that the respondent had repudiated the subcontract and the appellant had accepted that repudiation. The appellant claimed the cost of completing the work, in the sum of $209,383.

39 The appellant pleaded that its facsimiles of 14 July and 15 July 2003 constituted notices, pursuant to cl 8.1(a), of default by the respondent under the subcontract. The appellant pleaded (par 19(c)) that the facsimile of 14 July 2003 'required the respondent to recommence work on site'. It pleaded (par 19(e)) that the facsimile of 15 July 2003 required the respondent 'to immediately progress work on the site with effect from 16 July 2003 utilising its full workforce previously engaged'. The appellant pleaded (par 19(f)) that the respondent had failed to rectify the default within three days as required by cl 8.1(a).

40 The appellant further pleaded that by stating in its facsimile of 11 July 2003, and again in its facsimile of 15 July 2003, that it intended to suspend the work, the respondent had breached the subcontract, that breach constituting a repudiation of the subcontract.

41 The appellant pleaded that by reason of the respondent's failure to remedy the default stated in the cl 8.1(a) notices and/or the respondent's repudiation of the subcontract, the appellant was entitled to, and by its facsimile of 21 July 2003 did, terminate the subcontract.

42 The Commissioner noted that the first questions to be determined on the counterclaim were whether the respondent was in default under the subcontract at the time it received the appellant's facsimiles of 14 July and 15 July 2003 and, if it was, whether those facsimiles, or any of them, constituted sufficient notice of the default for the purpose of cl 8.1(a).

43 His Honour observed ([98]) that while he understood the counterclaim to allege that the respondent was in default because it had given notice that it intended to suspend the work, at the trial the appellant appeared to rely instead upon a failure by the respondent to comply with directions of the respondent under cl 4.2 of the subcontract, those directions said to be contained in the appellant's facsimiles of 11 July and 12 July 2003.

44 The Commissioner considered that, in any event, neither ground had been made out. He said:

In my opinion, neither of those facsimiles [of 11 July and 12 July 2003] contained a direction of the type contemplated by cl 4.2 of the written agreement. Neither of them actually required the [respondent] to do anything at all. In the first facsimile, Longo complained about what had happened on site that day, in terms of plastering, and, in the second, he complained about the failure of DeVincentis to keep his promise to work on 12 and 13 July 2003. I do not consider that his comments to the effect that the [respondent] needed to complete the works and that time was of the essence amounted to a direction of any kind. Therefore, I do not consider that the [respondent] breached its obligations under cl 4.2 by failing to take any action following receipt of either of those facsimiles.

Nor do I believe that, despite what DeVincentis had said in his facsimile dated 11 July 2003, the [respondent] actually suspended the plastering works under the sub-contract. I say that because there were obviously plasterers on site on 11 July 2003, and, although no plasterers attended site on 12 or 13 July 2003, there was a setter on site on 14 July 2003 (even though it was 'very wet'), two on 15 and 16 July and one on 17 July. Whilst those numbers may not have completely satisfied the [appellant], they were not consistent with a total suspension of the works. For those reasons, I do not consider that the [respondent] was in breach of its obligations under the sub-contract simply because it sent a facsimile to the [respondent] stating that it intended to suspend the works [99] - [100].

45 His Honour concluded ([101]) that as the respondent was not in breach of the subcontract on either 14 July or 15 July 2003, the appellant was not entitled to give notice of default under cl 8.1(a). It followed that the appellant was not entitled to terminate the subcontract.

46 The Commissioner went on to consider whether, if he was wrong in that finding, the facsimiles of 14 July and 15 July 2003 were sufficient notice for the purposes of cl 8.1(a) to entitle the appellant to terminate the contract. The Commissioner found that while the terms of cl 8.1(a) did not prescribe what the notice of default should provide [105]:

... it seems reasonably clear that the notice should at least contain details of the alleged default, require that the [respondent] rectify the default within three days of receipt of the notice and inform the [respondent] that, should it fail to do so, the [appellant] might terminate the sub-contract by notice. The notice should be unequivocal in order to convey what is amiss so as to identify the default: Yendex Pty Ltd v Prince Constructions Pty Ltd (1988) 15 BCL 74 at 75.

47 His Honour held that neither of the facsimiles fulfilled those requirements. In respect of the facsimile of 14 July 2003, his Honour noted ([109]) that while the appellant asserted in the facsimile that the respondent was 'in breach' of the subcontract, no details of the breach were provided. The Commissioner went on to say:

In my opinion, the facsimile dated 14 July 2003 was insufficient to constitute a notice for the purposes of cl 8.1(a) of the written agreement. I have already mentioned that it gave no details of the breach. In my view, that was in no way rectified by the requirement that the [respondent] 'recommence work'. As at 14 July 2003, the [respondent] had not stopped working. It had a setter on site, even though the conditions were 'very wet'. It had had three setters on site on 11 July 2003, which had been the last usual working day. It would have been difficult for the [respondent] to glean from the notice that it was in breach because it had stopped working. In addition, the notice gave the [respondent] insufficient time to 'rectify' its default, even if it had known what that default was. Clause 8.1(a) provided that the [respondent] should give the [respondent] three days notice, whereas the facsimile required the [respondent] to recommence work the following morning or the sub-contract would be terminated [109].

48 His Honour also found that the facsimiles of 15 July 2003 were not sufficient. The Commissioner said:

The first of those made no reference to any breach of the sub-contract and imposed no time within which the [respondent] was to rectify any alleged default. It said simply that there had been two setters on site that day, but that it was 'imperative' that the floaters commence the following day, 16 July 2003. The second of the two facsimiles sent by the [appellant] on 15 July 2003 made no reference to an alleged breach and imposed no time limits either. It simply demanded that the plastering work be progressed immediately and said that the [appellant] required the [respondent] to have its full workforce on site [111].

49 The Commissioner accordingly held that even if the respondent had been in breach of the subcontract, none of the facsimiles relied upon by the appellant constituted a sufficient notice to entitle the appellant to terminate the subcontract.

50 The Commissioner then turned to the appellant's claim that the respondent had repudiated the subcontract, a claim which his Honour described as relying upon on the respondent's facsimile of 11 July 2003. (In fact, in its pleaded case the appellant relied upon both the respondent's facsimile of 11 July and its facsimile of 15 July, in each of which the respondent stated that it was suspending the work.) His Honour referred to his earlier finding (at [100]) that, despite the statement in the facsimile of 11 July 2003 that the respondent was suspending work, plasterers employed by the respondent had in fact worked on the site on 14, 15, 16 and 17 July 2003, and to his conclusion that, of itself, the sending of the facsimile was not a breach of the respondent's obligations under the subcontract. The Commissioner rejected the claim.

51 The Commissioner held that the respondent had established its claim and entered judgment for the respondent in the sum of $51,205. He dismissed the appellant's counterclaim ([125]).

52 The appellant relies on five grounds of appeal. The first ground of appeal, concerning the calculation of the amount of the respondent's claim, was abandoned on the hearing of the appeal. The fifth ground depends upon the outcome on grounds 2, 3 and 4 and adds nothing of significance to them. It is unnecessary to set out grounds 2, 3 and 4 in full. They were, in substance, as follows.

53 By ground 2, the appellant contended that the finding of the Commissioner that the respondent was not in breach of the subcontract was against the weight of the evidence, in that:

(a) in its facsimiles of 11 and 15 July 2003 the respondent said it was suspending the work;

(b) the respondent failed to have more than two or three workers between 11 and 17 July 2003, that being inconsistent with its contractual obligations and amounting to a suspension of the work; and

54 By ground 3, the appellant contended that in finding that the notices issued by the appellant dated 14 and 15 July 2003 were not sufficient notices for the purpose of cl 8.1(a), the Commissioner misdirected himself by applying a strict, rather than commonsense, approach to the requirements of the notice and he gave no or insufficient weight to the following:

(a) prior to 15 July 2003 the respondent knew that, contrary to the appellant's wishes, it did not have a full workforce at the site;

(b) the respondent had no contractual right to suspend the plastering works or threaten to do so;

(c) in the circumstances that existed the appellant's facsimiles of 14 and 15 July 2003 left the respondent in no doubt as to the default; and

(d) a notice under cl 8.1(a) was not required to state that the default must be rectified within three days.

55 By ground 4, the appellant contended that the Commissioner's finding that the respondent had not repudiated the subcontract was against the weight of the evidence.

56 It is convenient to consider these grounds together.

57 Under cl 8.1, the appellant was entitled to terminate the subcontract if the respondent:

[Failed] to carry out any of its obligations under [the] Subcontract and [failed] to rectify the default within 3 days of becoming aware of details of the default by notice from the appellant or otherwise.

58 In the present case, it was therefore necessary for the appellant to show that:

the respondent was in default of an obligation, or of obligations, under the subcontract;
the appellant gave the respondent notice of details of the default;
as at 21 July 2003 the respondent had been aware of the default for not less than three days; and
the respondent had not remedied the default as at 21 July 2003.

59 It was never part of the appellant's case that the respondent became aware of the default upon which the appellant relied to terminate the subcontract except by notice from the appellant.

60 The Commissioner found that the appellant was not entitled to terminate the subcontract, on essentially two grounds. First, he found that the respondent was not in default under the subcontract when it received the facsimiles of 14 July and 15 July 2003; and, secondly, he found that, in any event, the facsimiles did not constitute notice of a default for the purposes of cl 8.1(a) of the subcontract. His Honour concluded that as at 21 July 2003 the respondent was not entitled to terminate the subcontract pursuant to cl 8.1(a). The appellant attacks each of his Honour's findings.

61 In relation to the first finding, it is notable that the counterclaim did not expressly identify the respect or respects in which it was alleged the respondent was in default as of 14 July and 15 July 2003. But, as I have mentioned, at the trial the appellant appeared to put the respondent's default in two ways; first, that the respondent had failed, contrary to cl 4.2, to comply with the directions of the appellant contained in the facsimiles of 11 July and 12 July 2003; and, secondly, that it had suspended the work, or stating that it was suspending the work.

62 In my respectful opinion, the appellant's contention that the facsimiles of 11 July and 12 July 2003 were directions within the meaning of cl 4.2 was rightly rejected by the Commissioner.

63 Under cl 4.2(a), the respondent was required to perform the work in accordance with any direction given by the appellant. In my view, in the context a 'direction' bears its ordinary meaning of 'an instruction what to do, how to proceed, or where to go': The New Shorter Oxford Dictionary. The question, then, was whether the facsimiles contained such a direction. The facsimile are set out earlier. In the facsimile of 11 July 2003 complained that, contrary to the plastering schedule for that day, no solid plasterers had worked on site and the setting plasterers had left early to collect their pay. It suggested the respondent devise a more suitable pay arrangement. The facsimile the following day, 12 July, complained that, contrary to an assurance by Mr DeVincentis, no plastering had been done that day. It said the respondent was causing delay to progress on the site and reminded the respondent that time was of the essence of the subcontract.

64 In neither facsimile, in my opinion, was there anything that could reasonably be understood as a direction to the respondent within the meaning of cl 4.2(a). In neither was the respondent instructed to do something, except perhaps to institute a pay system that did not require the respondent's employees to leave the site early to collect their pay. The facsimiles were not in the nature of directions but of complaints, and complaints of a fairly specific nature. Whilst it is evident from the facsimiles that the appellant was dissatisfied with the respondent's approach to the work on those days, that is quite a different thing to a direction of the sort contemplated by cl 4.2(a).

65 It follows that the respondent was not in default by failing to comply with a direction of the appellant under cl 4.2(a). No such direction had been given.

66 The Commissioner was also, in my opinion, correct to reject the appellant's contention that the respondent was in default as at 14 July and 15 July 2003, by suspending, or stating that it was suspending, the work. I should say that it is not entirely clear whether it was the appellant's case at trial that the statements in the respondent's facsimiles of 11 July and 15 July 2003 that it was suspending the work were themselves a breach of the subcontract, or whether the appellant contended that the respondent had actually suspended the work. In her closing submissions at trial, counsel for the appellant submitted, somewhat Delphically, that the statement in the respondent's facsimile of 11 July 2003 'amounts to a suspension of the works'. In the end I do not think it matters which way the case was put. Neither was made out.

67 I respectfully agree with the Commissioner that the respondent's statements that it was suspending the work did not of themselves constitute a breach of the subcontract. Nor, as the Commissioner found, did the respondent actually suspend the work. Despite the respondent's stated intentions, its plasterers were at work on the site on 11, 14 and 15 July 2003, although they did not work over the weekend of 12 - 13 July 2003 as the respondent had said they would.

68 I turn then to the issue of whether the facsimiles were sufficient for the purposes of cl 8.1(a) to constitute notice of a default. The appellant attacked the Commissioner's finding ([105]) that the facsimiles in question were insufficient in that they did not require the respondent to rectify the default within three days, they did not inform the respondent that if it failed to do so the appellant may terminate the subcontract, and they did not contain details of a default within the meaning of cl 8.1(a).

69 The appellant submitted that where notice of a default is given under cl 8.1(a), the only requirements are that it be in writing and that it give details of the default. It was submitted that in determining the adequacy of a notice of default, a commonsense approach must be adopted which takes into account the knowledge of the parties and the circumstances of the case. Counsel referred to Brenmar Building Co Pty Ltd v University of Newcastle (1999) 15 BCL 467 and FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340. In its written submissions, the appellant contended that the Commissioner erred in adopting what was described as 'the strict approach' adopted in Yendex Pty Ltd v Prince Constructions Pty Ltd (1988) 5 BCL 74. It was submitted that when considered in the light of the facts known to the respondent at the time, the facsimiles gave sufficient details of the respondent's default to satisfy cl 8.1(a). In respect of the respondent's knowledge, the appellant referred to the facsimiles that had passed between the parties regarding the number of plasterers on site and the appellant's requirement that the respondent provide a full workforce.

70 In my view, the Commissioner correctly found that the appellant's facsimiles were not effective as notice of a default for the purpose of cl 8.1(a).

71 The question of the degree of particularity with which a default must be described in a default notice has been considered in a number of cases. See, for instance, Hudson Building and Engineering Contracts (11th ed, 1995) [12.033]; Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303; FPM Constructions, [146] - [149]; and the cases referred to therein. However, each case ultimately depends upon the particular contractual provisions in question and I do not think that any real assistance is to be gained from canvassing the various cases. We were not referred to any case where a provision in the same terms as the current provision has been considered and my own research has not uncovered any.

72 It is, nevertheless, necessary to deal with the appellant's complaint that the Commissioner erred in following the 'the strict approach' in Yendex. In Yendex, cl 41 of the subcontract provided that if Yendex, a subcontractor, defaulted under the subcontract, the head contractor could serve on it a notice to show cause why certain contractual powers should not be exercised. Such a notice had to 'specify the default upon which it was based'. The notice served by the head contractor stated that Yendex had 'neglected to comply with its obligations under the contract as exampled by' and went on to state three alleged defaults, one of which was 'failure to provide materials as required by the contract'. Yendex responded that it was not a proper notice and did not specify the alleged default. On the question of whether the notice had sufficiently specified the default, Moynihan J (Ryan J and said Kelly SPJ agreeing) said:

I am content to approach the matter on the basis that the contractual provision ... required a notice which conveyed to a commercial builder what was said to be amiss so that he (in this case the subcontractor) could turn his mind to it and show cause as cl 41(a) contemplated. That seems to me a correct approach (see Houndslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233 at 264-265; Re Arbitration between Stewardson Stubbs & Collett Pty Ltd and Bankstown Municipal Council [1965] NSWR 1671; Erikson v Whalley [1971] 1 NSWLR 397 at 401- 402). Such a notice should be unequivocal in order to convey what was amiss so as to identify the default in respect of which cause was to be shown (75).

73 His Honour said that the reference to 'exampled by' suggests there were other, unspecified, defaults. The notice was ambiguous in a sense which could not be dealt with by extrinsic evidence. If the three matters had been discussed, the notice suggested more had arisen. If fewer or more matters than those three had been discussed, the reference to 'as exampled' did not specify in respect of which matters Yendex was to show cause.

74 It seems that the appellant identified in Brenmar an approach which was not as strict. In that case, the contract stated that the builder was in default if, among other things, it failed to proceed with reasonable diligence or in a competent manner. In the event of a default, the architect could issue a notice specifying the default and if the default was not remedied within 14 days the proprietor could terminate the contract. The notice issued by the architect specified that the builder had failed 'to proceed with reasonable diligence or in a competent manner'. The builder's contention that the notice did not adequately specify the default was rejected by the New South Wales Court of Appeal. Hutley JA (with whom Glass and Samuels JJA agreed) concluded that 'both authority and commonsense ... fully support the view that to inform a builder that he has not been proceeding with a general task which he has been given - not with a particular item - in a competent manner or with reasonable diligence is a sufficient specification' (469).

75 The appellant also placed reliance on the judgment of Basten JA in FPM Constructions, where his Honour, having referred, among other cases, to Hounslow London Borough Council v Twickenham Garden Developments Ltd [1970] 3 WLR 538; [1971] Ch 233; Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671 and Yendex (noting, relevantly, that the facts in Yendex were somewhat different) said:

It follows that a contractual notice should be read with the understanding which will be brought to the exercise by the recipient, including his or her knowledge of the circumstances in which it is given. If the recipient is a builder, it should not be assumed that the reader will understand technical legal terms, but it may be assumed that expressions commonly adopted in that industry will be understood. However, each case will turn upon its own particular circumstances, including the identity of the contracting parties. In the same way, the notice need not be construed as a contract, eschewing reference to any material not identified on the printed page. That does not mean that the builder should be left to guess at the provision said to have been breached, nor as to the particular conduct said to be in breach, if that has not been specified and if there is doubt as to its identity. Further, in considering whether a particular notice is adequate to identify a particular breach, a court may take into account the response of the builder. That is not, of course, to say that the builder can demonstrate inadequacy by simply claiming that no response can properly be given; however, where an appropriate response is provided, the adequacy of the notice may be difficult to dispute [151].

76 The court concluded that it was evident from the builder's reply to the notice that the builder adequately understood what breach was alleged.

77 I must say that I do not discern in the cases referred to any material deviation from the approach taken in Yendex. What emerges from the cases is the need for the notice to bring sufficiently to the attention of the recipient what the default is alleged to be; or in the oft-quoted phrase of Megarry J in Houndslow London Borough Council, the notice must 'direct the contractor's mind to what is said to be amiss'. It is also clear that each case must ultimately depend upon its own particular facts.

78 In the present case, the appellant was entitled to serve a notice under cl 8.1(a) where the respondent had failed to carry out an obligation under the subcontract. The notice had to provide the recipient with 'details of the default'. The effect of the notice was to entitle the appellant to terminate the subcontract if the default was not remedied within three days of the details of it being provided to the respondent. The time within which the default was to be remedied was therefore short and the consequences of a failure to remedy it were drastic.

79 In my view, in order to be a valid notice under cl 8.1(a), a notice had to clearly direct the respondent's attention to the alleged default with sufficient specificity that the default was capable of being readily identified by the respondent. I accept the appellant's submission that whether a notice is sufficient for that purpose is to be considered not solely by reference to the terms of the notice but also having regard to the understanding which will be brought to it by the respondent, including its knowledge of the circumstances in which the notice was given: see FPM Constructions, [150] - [151]. But it cannot to be left to the respondent to winkle out an alleged default from an equivocal, vague or imprecise notice.

80 The facsimile of 14 July 2003 was not, in my opinion, a valid notice under cl 8.1(a). The 'breach of [the] contract' referred to in the facsimile is not identified. The terms of the facsimile appear to suggest that the alleged breach follows from the appellant's (summary) rejection of the respondent's complaints about the conditions on the site. To the extent that any default can be gleaned from it, the facsimile appears to suggest that the respondent had ceased work on the site. That plainly was not the case. It was not in issue that the respondent had three setters on site on 11 July 2003, which was a Friday and, as the Commissioner noted, the last usual working day of the week. The respondent did not fulfil its promise to have plasterers working on site over the weekend, but on Monday, 14 July 2003, the respondent had a setter on site although the conditions were 'very wet'.

81 The facsimiles of 15 July 2003 are of a similar nature. Neither sufficiently identified a default by the respondent. Indeed neither appears to have been written with cl 8.1(a) in mind. The first facsimile simply said it was imperative that floaters were on site on 16 July 2003. In the second facsimile the appellant advised the respondent that the units notified on 14 July were available, it 'required' the respondent to have a 'full workforce' on site on 16 July, and it expressed the view that the absence of the respondent's full workforce on 15 July had caused delay to the appellant's construction programme. The appellant did not assert in the facsimile that the respondent was in default under the subcontract in not having a 'full workforce' on site on 15 July 2003 and I did not understand the appellant to contend that the absence of a full workforce on 15 July 2003, of itself, constituted a breach of the subcontract.

82 While the facsimiles are to be read in light of what was then known to the respondent, I do not consider there was anything in the circumstances referred to by the appellant which would have enabled the respondent to understand the facsimiles to refer to a particular default by the respondent under the subcontract.

83 In my view, the Commissioner correctly found that the facsimiles, whether considered individually or together, did not constitute notice of a default for the purposes of cl 8.1(a) of the subcontract. For that additional reason, the appellant's claim that it was entitled to terminate the subcontract under cl 8.1(a) must fail.

84 The Commissioner also found that the facsimiles were deficient as notices under cl 8.1(a) because they did not require the respondent to rectify the default within three days and to inform the respondent that if it failed to do so the appellant may terminate the subcontract.

85 My provisional view, with respect, is that his Honour erred in so finding. I am inclined to the view that all that was required of the appellant under cl 8.1(a) was to inform the respondent 'of the details of the default' alleged by the appellant. Once the respondent was aware of a default it followed from the terms of cl 8.1(a) that the appellant was entitled to terminate the subcontract if the respondent failed to rectify a default within three days of being given notice of it. Similarly, it was not incumbent upon the appellant, when giving the respondent notice of a default, to reiterate the effect of cl 8.1(a) in respect of the appellant's right to terminate if the default was not remedied. However, as these matters were not fully argued and are not necessary to my decision, I would express no final view on them.

86 I would dismiss grounds 2 and 3 of the grounds of appeal.

87 It is convenient before turning to the detail of this ground of appeal to refer to the relevant legal principles concerning repudiation.

88 In an oft-cited passage, Gibbs CJ said in Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, that a contract may be repudiated

if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract ... or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way (625 - 626). (citations omitted)

89 See also Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, 33, 40; and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623, 634, 643, 664.

90 In Laurinda, the High Court also cited with approval the description of repudiatory conduct by Fullagar J in Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327, 351, as conduct such that 'a reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him' (658, 666).

There is a difference between evincing an intention to carry out a contract only if and when it suits the party to do so and evincing an intention to carry out a contract as and when it suits the party to do so. In the first case the party intends not to carry out the contract at all in the event that it does not suit him. In the second case the party intends to carry out the contract, but only to carry it out as and when it suits him. It is much easier to say of the first than of the second case that the party has evinced an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. But the outcome in the second case will depend upon its particular circumstances, including the terms of the contract. In some situations the intention to carry out the contract as and when it suits the party may be taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with the party's obligations and not in any other way (634).

It is not necessary for repudiation of a contract that the repudiator make plain that he will never perform his contractual obligations at all. What Lord Dunedin described (Forslind ibid at 190) as the assumption of 'a shilly-shallying attitude in regard to the contract' and what Lord Shaw of Dunfermline (ibid at 192) called 'procrastination ... persistently practised' can in some circumstances reach the stage of repudiation even though accompanied by assurances of ultimate performance at some future time (658 - 659).

93 Their Honours (659) referred with approval to the following passage from the speech of Lord Shaw in Forslind v Bechely-Crundall [1922] SC (HL) 173:

If in short, A, a party to a contract acts in such a fashion of ignoring or not complying with his obligations under it, B, the other party is entitled to say: My rights under this contract are being completely ignored and my interests may suffer by non-performance by A of his obligations, and that to such a fundamental and essential extent that I declare he is treating me as if no contract existed which bound him' ... in business over and over again it occurs - as, in my opinion, it occurred in the present case - that procrastination is so persistently practised as to make a most serious inroad into stage the rights of the other party to a contract. There must be a stage when the person suffering from that is entitled to say 'this must be brought to an end (191 - 192).

94 Deane and Dawson JJ went on to say that the question of whether in a case of procrastination or non-performance the contract has been repudiated is essentially a question of fact that can be answered in the affirmative when the procrastination or non-performance has reached the stage of conveying to a reasonable person in the situation of the other party 'repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it' (659).

95 It is well-established that whether a party's conduct is repudiatory is not decided by reference to the party's subjective intention, but by reference to how what the party has said and done would appear to a reasonable person in the position of the other contracting party: Laurinda (643, 647 - 648, 657 - 658, 666).

96 And in determining whether a party has repudiated the contract, the party's conduct must be evaluated in all of the circumstances: Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 [102].

97 Finally, it must be borne in mind that repudiation of a contract 'is a serious matter, not to be lightly found or inferred': Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60, 71. See also Progressive Mailing House (32) and **Laurinda (**643, 657). Repudiation 'is a drastic conclusion': Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11; [1980] 1 WLR 277; [1980] 1 All ER 571.

98 There appears to have been a degree of confusion below as to the precise nature of the appellant's case on repudiation. In the counterclaim, the appellant alleged that the respondent had repudiated the subcontract by the statements in its facsimiles of 11 July and 15 July 2003 that it was suspending the work (par 19(g)). It pleaded that by reason of that conduct the appellant was entitled to terminate the subcontract (par 19(h)), and that it had done so by the notice of 21 July 2003 (par 19(i)).

99 At the trial, in her closing submissions counsel for the appellant appeared to put the case slightly differently, submitting that the respondent had repudiated the subcontract by the statements by its facsimiles of 11 July and 15 July 2003 that it was suspending the work, by the reduction of the respondent's workforce on site after 11 July to no more than two plasterers, and by suspending the work entirely on 17 July 2003. It was submitted that the appellant had accepted the repudiation by its notice of 21 July 2003. In his closing submissions, the respondent's counsel does not seem to have canvassed the issue of the respondent's repudiation.

100 It appears, however, from his reasons for decision that the Commissioner understood the appellant's case at trial to be that the respondent repudiated the subcontract by the statements in its facsimile of 11 July 2003. His Honour does not refer to the facsimile of 15 July 2003. His Honour also does not refer to the state of the workforce after 11 July or to what was said to be a suspension of the work after 17 July 2003. But he does go on to state that he considered the respondent was not in breach of the subcontract either as at 14 and 15 July 2003 or as at 21 July. His Honour found that the respondent had not, therefore, repudiated the subcontract as at 21 July.

101 It was submitted on behalf of the appellant that the Commissioner's finding that the respondent had not repudiated the subcontract was against the weight of the evidence. The appellant argued that in stating in the facsimiles of 11 July and 15 July 2003 that it was suspending the work, by reducing the respondent's workforce on site after 11 July to no more than two plasterers, and by suspending the work entirely on 17 July 2003, the respondent had clearly evinced an intention to perform the subcontract in a manner substantially inconsistent with its contractual obligations. I do not agree.

102 In the first place, as the Commissioner found, despite the statements in its facsimiles of 11 and 15 July that it was suspending the work, on neither occasion did the respondent in fact suspend the work. On each occasion, the respondent's words were immediately belied by its actions. I have earlier referred to the fact that plasterers from the respondent had worked on the site on 11, 14 and 15 July 2003. It was not in issue that plasterers also worked on 16 and 17 July 2003. They did not work on the weekend of 12 - 13 July 2003, although the respondent had said they would. While no plasterers worked on site on Friday, 18 July 2003, in his facsimile to the appellant of 19 July 2003, Mr DeVincentis said that the setters had not worked on 18 July because ceiling fixers were working in the areas to be plastered. He said the setters would recommence working on Monday, 21 July 2003, as they would have unimpeded access to some of the units. The Commissioner found that two setters turned up to work on 21 July 2003. That finding of fact is not challenged by the appellant.

103 Secondly, in evaluating the respondent's conduct in respect of the reduced workforce after 11 July, and what was said to be a suspension of the work after 17 July 2003, it is necessary to consider the circumstances in which that conduct occurred.

104 The subcontract had been entered into in April 2003 and the respondent commenced work on 14 April 2003. The Commissioner found that from an early stage the respondent was dissatisfied with the conditions on site but, despite that, the first evidence of any difficulty between the parties was the appellant's facsimile of 12 June 2003 complaining that the respondent had sent its plasterers to a different site for the previous few days. No more appears to have arisen out of that as the next occasion on which there was evidence of a difficulty began about a month later, with the exchange of facsimiles on 11 July 2003. By then the work had been underway for some three months.

105 The facsimiles of 11 July 2003 were the opening salvo in the relatively short but sharp dispute that erupted between the parties as to whether, or to what extent, the site conditions were hampering the ability of the respondent to carry out the work, the respondent contending that it could not carry out the work in accordance with the subcontract until the conditions on site - particularly the alleged failure by the appellant properly to co-ordinate the work of the various trades - were remedied by the appellant, and the appellant insisting the respondent's complaints were unfounded and demanding that it use its full workforce to continue with the work. There the battle lines were drawn and there they were standing when the appellant served the notice of termination on 21 July 2003.

106 At trial, the appellant submitted that the respondent's conduct did not arise out of any concerns about conditions on site but was motivated simply by a desire to secure a new contract for the work because the respondent had underpriced the work in the existing subcontract. However, no such finding was made by the trial judge and on the appeal counsel for the appellant accepted that it was implicit in his Honour's finding that he did not accept that submission (ts 13). It was not contended on the appeal that the Commissioner should have found that the respondent's complaints were untenable or disingenuous.

107 It was submitted by counsel for the appellant that if the respondent believed it was being delayed in carrying out the work, or that the appellant was in default under the subcontract in failing to provide proper access to the site, the appropriate recourse for the respondent lay under the subcontract. The subcontract provided, by cl 5.7 or cl 9, appropriate redress in circumstances such as those alleged by the respondent and it was to those that the respondent was obliged to have resort. Its failure to do so reflected its intention to repudiate its obligations under the subcontract.

108 The difficulty, it seems to me, with that submission is that neither of those provisions assisted the respondent in the circumstances of this case. Clause 5.7(a) required the respondent to notify the appellant if the respondent was delayed for any reason in performing the work. Counsel for the appellant conceded (quite properly) that the respondent's various facsimiles gave such notice (ts 11). The balance of cl 5.7 is concerned with an application by the respondent for an extension of time. That has no relevance in this case.

109 Clause 9 of the subcontract applied, among other things, where the appellant had failed for a period of 14 days to give the respondent sufficient access to the site to enable the respondent to perform the work then due to be performed. It provided that in such a case the respondent may give the appellant a notice requiring it to show cause why the respondent should not suspend work. The period within which the appellant is to show cause was to be not less than seven days. In this case, the appellant served notice of termination some 10 days after the respondent's complaint of 11 July 2003 about lack of sufficient access to the site.

110 The onus lay on the appellant to make good its case that the respondent's conduct showed that it did not intend to perform its obligations in accordance with the terms of the subcontract. It is not an inference that will be lightly drawn. The respondent throughout professed a willingness to carry out the work in accordance with the subcontract but complained that it was being prevented from doing so by reason of site conditions for which the appellant was responsible. The Commissioner implicitly rejected the appellant's contention that the respondent's complaints were disingenuous. In the circumstances, the appellant's case that the respondent had repudiated the subcontract was simply not made out.

112 The appellant has failed to establish that the Commissioner was in error. I would dismiss the appeal.

Brenmar Building Co Pty Ltd v University of Newcastle

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (162 paragraphs)

DIPLOMA CONSTRUCTION PTY LTD -v- MARULA PTY LTD [2009] WASCA 229 (18 December 2009)

Parties

Cases Cited (4)