C & V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd

The remaining disputed factual issues

1. The parties remain in dispute about critical factual findings that would underpin the referee's conclusions on quantum. They agree that the questions that must be determined are: 1. is C&V entitled to damages in respect to works done under the Building C contract after 27 July 2018? ('Issue 1') 2. having regard to the answer to (1), what is the loss for breach of the contract? ('Issue 2') 3. what are the appropriate final orders ('Issue 3')?
2. The parties are agreed as to some components of the damages award, which will be later described, as well as orders for interest (relating to the contracts for both Buildings B and C) and the release of monies paid by C&V into Court as security during the proceeding. As will be seen, the issue of costs of the proceeding after 21 September 2022, the date when I had made orders following the hearing in May 2022, is affected by resolution of issue 1.

C&V's submissions

1. C&V emphasised the Court of Appeal's declaration that Metropolitan required it to 'procure and fabricate' (8) soldiers for Building C.
2. C&V did not contest the finding I had made that Metropolitan had explicitly directed C&V not to do any further work on Building C soldiers after 27 July 2018.
3. As I understand its argument, C&V says that the finding that I made only bore on the question whether a contract was formed about Building C. Metropolitan did not agitate in the Court of Appeal any argument that if Metropolitan breached a contract for fabrication in respect to Building C, its damages should be limited to 27 July 2018. That being so, on this remitter, the Court should not entertain the argument.
4. Alternatively, if the argument is to be entertained, C&V says that Metropolitan's 'unilateral' direction had no contractual effect: it had no right to order C&V to stop work or to terminate the contract 'on a moment's notice.' There was no express right to do so in the terms and conditions, which I had found (at [179]-[180] of my judgment) formed part of the contract. Conceivably, if Metropolitan's direction had contractual effect, there might be an implied term (in fact) about how much time C&V had to respond to any direction, in order to give the contract efficacy, but that depended upon what was reasonable in the circumstances.
5. Mario Pizzolato, for C&V had deposed in his affidavit (21 August 2021, paragraph 292), many things had occurred already in fabricating the 8 soldiers for Building C. The referee had estimated the time that C&V would likely require to fabricate the 8 soldier piles (628.5 hours) but in the events that occurred, C&V was much more efficient: it took it 424.5 workshop hours. It was submitted, albeit without reference to actual evidence by Mr Pizzolato, that it would not have been reasonable to expect C&V to 'down' tools as at 27 July 2018, leaving the parties with 8 partially cut, drilled and welded soldiers; but, to the contrary, it was reasonable to enable it to charge for all the time it spent for Building C. If hypothetically (since C&V did not accept) the argument could properly be made, C&V was entitled to reasonable notice from Metropolitan of a period to stop work, it would want to put on further evidence.

Metropolitan's submissions

1. Ultimately, Metropolitan submits that C&V is not entitled to damages in respect to works done under the Building C contract after 27 July 2018. This, Metropolitan contends, was made clearly apparent by Metropolitan in its written opening outline at the hearing and in the hearing itself (Exhibit B on remittal: CB 164; CB 147, 150 & 154).
2. Metropolitan rejected the proposition that in the way that the litigation was run, it is shut out from running the argument that it raises in this hearing. It submitted that the material question determined by the Court of Appeal was whether there was a contract in relation to Building C. In the Court of Appeal's costs judgment, the Court (at [40]) accepted Metropolitan's submission that there was a live issue whether or not C&V was entitled to be paid anything in respect to work undertaken in relation to Building C after 27 July 2018 [5] .
3. Allowing Metropolitan to run its argument was not unfair to C&V. As recorded in my primary judgment (at [10]), at the hearing C&V had abandoned a pleaded case that Metropolitan had repudiated any contract for Building C. This signified that up to the point of abandonment, C&V previously had the opportunity to adduce and rely upon evidence.
4. Metropolitan relied upon its position advanced at the hearing at first instance, contingent upon the premise (contrary to what I had concluded but since resolved by the Court of Appeal) that there was a contract in respect to Building C. Its position was that by 27 July 2018, Metropolitan had made it clear that C&V should not fabricate soldiers for Building C. Metropolitan says that its position in this regard was influenced by C&V 'framing' its claim for damages on the basis of hours expended (rather than, say, loss of profit) (see for example paragraphs 6A, 8 and 9(b), and in particular (ii) to paragraph 9(b), and 9(c) of the Amended Statement of Claim). Although Counsel for Metropolitan did not refer to the matter in his submissions, I interpolate to note that by its Defence (and especially at paragraphs 6 and 7), Metropolitan asserted that its obligation to pay referred to 'hours worked'.
5. This meant that C&V should be confined to compensation for the hours expended from 23 July 2018 to 27 July 2018, but not thereafter.
6. Metropolitan pointed to certain findings I made at first instance to support its contention that it had made it clear that C&V should not fabricate soldiers after 27 July 2018: at [158], [159], [161]. It says that C&V did not challenge any of these findings on appeal.
7. Notwithstanding the relatively narrow finding that the Court of Appeal made about Building C, which concerned the formation (and scope) of a contract, at the hearing of the remittal, Counsel for Metropolitan accepted that, by reason of the Court of Appeal's holding, Metropolitan must be taken to have repudiated the contract by the direction given on 27 July. (He alternatively characterised Metropolitan as being in 'fundamental' breach. He eschewed any characterisation of there being an 'anticipatory' breach).
8. That being so, Counsel suggested that orthodox principles indicated that C&V had to mitigate its loss. Although a failure to mitigate was not formally pleaded in its Defence, Metropolitan's Counsel submitted that it was an issue that had been in play during the hearing.
9. When I asked Mr Sheldon what (in the absence of a pleading of failure to mitigate) he contended were the steps that C&V should have, but did not, reasonably undertake, Mr Sheldon's answer was that it should have taken the following steps: (a) assert that Metropolitan had repudiated the contract; (b) place the work on the soldiers aside and put it in storage (the costs of which could be visited upon Metropolitan), (c) arrange for Metropolitan to collect the (incomplete) soldiers; and (d) issue a final invoice to Metropolitan for the time spent up to 27 July and the costs of the materials used to that point. He submitted that it was unreasonable for C&V to continue to work and charge Metropolitan for it. Mr Pizzolato well knew, from that date, that Metropolitan did not want any more work; nor the soldiers.
10. In the absence of challenge to the enumerated findings I made, Metropolitan submitted that the damages assessment, on remitter, should be based on those findings. Given the way C&V framed its case, this was on the hours spent performing the works up to 27 July 2018.

C&V's submissions in reply

1. Counsel for C&V latched on to Metropolitan's concession that its 27 July direction had no contractual force, but rather represented a repudiation. Mr Weinberger noted that by its amended pleading (paragraph 23(b)), C&V had averred that C&V had rejected Metropolitan's repudiation and required Metropolitan to perform the Building C contract. In this way, it had affirmed that contract.
2. Counsel argued that in substance or effect, Metropolitan was contending that C&V failed to mitigate its loss because it exercised its rights not in a manner of Metropolitan's choosing; that is by continuing the work. No duty to mitigate arose. What the Court of Appeal observed at paragraph 20 of its costs judgment did not derogate from the fact that the contract remained on foot.
3. The steps that Metropolitan's Counsel says that C&V should have, but did not, take in mitigation were not put to Mr Pizzolato.
4. Finally, Mr Weinberger reiterated that there may be some difficulty in defining what a reasonable period might be to continue working after the direction had been given, but it was not the case that it had other work to perform.

Consideration

1. Whilst the distinction is sometimes a fine one, the contract for Building C can probably be characterised as a contract for 'work and materials,' rather than one for the sale of goods (for the distinction, see J D Heydon, Heydon on Contracts: the General Part, Lawbook Co 2019, at [6.880] ('Heydon'), but regardless, what is pertinent is that the parties did not agree to a fixed price for the supply of the 8 soldiers. C&V did not plead any case that in the absence of any fixed price for the soldiers, it was entitled to a 'reasonable' price or identify the machinery to enable the Court to assess how a reasonable price for the soldiers could be ascertained.
2. Instead, C&V pleaded its case on the basis that its terms of payment were primarily centred upon the time that its labour was expended. This is reflected in the invoices C&V issued to Metropolitan on 4 September 2018 and 5 November 2018 (Exhibit B on remitter, CB 94-102, CB 105-106 & 109-117) and its Terms and Conditions (Exhibit B, CB 19-20). Further, it is also partly reflected in my statement of issues (having heard the parties' arguments) at the hearing (My Judgment at 9]. It also explains why I proposed, early in the hearing, a referral and the terms of it (My Judgment at [11]). Further, by its pleading, Metropolitan put in issue, as a material fact in its Defence (paragraph 10(f)), that C&V was advised to stop work for all soldiers on 27 July 2018 and, albeit more generally, also asserted that the hours that C&V invoiced, relevantly in relation to the contract for Building C, were 'unreasonable and excessive' (paragraph 10(c)). C&V did not plead, as an alternative case on damages caused by repudiation or breach, the costs associated with disposal of materials after Metropolitan directed it to stop work on 27 July 2018.
3. It is elementary that following a breach of contract, the innocent party is not entitled to recover every loss it claims. Two relevant controls upon recovery include, first, the plaintiff is required to establish a causal connection between the breach and the plaintiff's loss [6] . A related principle is that it is open for the Court to conclude that there is no causal link between breach and loss because of an intervening event that breaks the chain of causation [7] . Such intervening event can include the plaintiff's conduct [8] . An intervening act has been described in the following way: "…the free, deliberate and informed act or omission of a human being, intended to exploit the situation created by the defendant." [9]
4. A second control on the recovery of damages, upon which much of the argument at the hearing of the remittal was directed, is that the plaintiff's capacity to recover is affected by whether it has behaved reasonably by mitigating the loss that it has suffered. Unlike causation, it is Metropolitan that carries the burden of proof on mitigation [10] .
5. Subject to procedural issues which I will return to, I am inclined to accept Metropolitan's central contention. It is not to the point that the direction made on 27 July 2018 was illegal or lacked contractual force: Metropolitan accepts that it amounted to a repudiation. Nor does it matter that C&V took steps to affirm the contract. Its case is based upon a breach, or repudiation, that occurred on 27 July 2018 and it bears the onus of proving that this breach caused the loss that it claims. Essentially its claim is one of labour and materials being wasted by the breach or repudiation.
6. For a contract in which Metropolitan's obligation to pay was based on the time for which the work performed, C&V freely, deliberately, and with the information that it had that Metropolitan did not want it to continue fabricating the soldiers, it nevertheless chose to continue to work. In effect, it ignored Metropolitan's request intending to charge Metropolitan for labour that it knew yielded no benefit that Metropolitan had requested as and from that date. Further, this is not a case where C&V demonstrated that the risk of C&V incurring losses after 27 July 2018 was created or enlarged by Metropolitan's breach or repudiation; a category of case that falls outside of the principle of intervening events.
7. I now addressing the procedural debate between the parties and whether C&V is correct in its contention that I should not give effect to my inclination.
8. As at the commencement date of the hearing, all issues - including damages for breach of the alleged contract in relation to Building C - were as the parties chose to frame them, as affected by the parties' pleadings. The referral I indicated (at [11] of my judgment) was made in recognition of the somewhat technical nature of the quantification of losses, which was based upon estimating the time of work performed. The referral did not itself relieve the parties from their entitlement to argue at the hearing liability questions such as whether C&V had proven an entitlement to claim for work performed after, and with particular reference to C&V's pleading (especially at paragraph 23(b)), Metropolitan had repudiated the contract on 27 July 2018.
9. In the circumstances that occurred, I did not determine that particular liability question because of the (erroneous) view as to the existence, nature or formation of a contract for Building C. The consequence was that I made no findings on other liability questions, such as causation; or Metropolitan's argument as to a failure by C&V to mitigate its loss. In those circumstances, it could not reasonably have been expected that Metropolitan would, in the appeal proceeding, seek to contend that my dismissal of C&V's contract claim for Building C could be justified on the basis on other grounds of liability, including causation or failure to mitigate when no findings had been made, one way or the other, on those matters in My Judgment. These liability issues had not been referred to the referee (Exhibit A on the remitter, pp 8-10).
10. After it corrected my error about the existence, nature and scope of the contract, with respect unsurprisingly, the Court of Appeal remitted back to this Court the assessment of damages for breach for contract C. Entailed in that is the Court's consideration of the issues of what loss was caused by the breach and whether C&F failed to mitigate such loss; issues which were not addressed, still less resolved, by me in my earlier judgment but which assuredly do need to be resolved now. Equally unsurprisingly, again respectfully, was the Court of Appeal's observation in its costs judgment on 10 October 2023, that the submission that Metropolitan ultimately wishes to advance in this hearing concerned a 'live issue.'
11. I agree, further, that the findings that I made in My Judgment regarding Metropolitan's direction to C&V on 27 July 2018, although expressed in a context where I was considering the existence, nature or scope of a contract for Building C, were nevertheless factual findings that were germane to issues of causation, or failure to mitigate, and those findings were not challenged by C&V in the Court of Appeal.
12. I disagree, therefore, with C&V's submission that it is now too late for Metropolitan to raise the ultimate submission it does now in the remittal. Further, given that the parties also had fair opportunity, up until the commencement of the hearing on 3 May 2022, to prepare their cases on all issues, including liability and damages, I reject the proposition, raised in paragraph 12 of C&V's written submissions (MFI 2) that any additional hearing is required.
13. Although there was complexity about both parties' pleadings, what emerged from Metropolitan's defence were (a) a factual assertion about Metropolitan advising C&V to stop work on 27 July 2018; and (b) a conclusion that in relation to both contracts, but more pertinently contract C, that the charge for time spent was 'unreasonable and excessive'. It was not apparent from the trial record whether C&V required further particulars from Metropolitan as to what the expression 'unreasonable and excessive' actually meant. At any rate C&V, who bore the onus of proof of causation of loss, did not, in any Reply or any further amended statement of claim, assert, arguably by reference to an implied term of fact, that it was entitled to charge for work performed after 27 July 2018 for a reasonable period after Metropolitan gave its direction. Nor did Mr Pizzolatto give any evidence (or at least any evidence that has been referred to in submissions on this remittal [11] ) as to why it was not possible, or practicable for C&V to comply with the direction made by Metropolitan on 27 July 2018 on that date.
14. In those circumstances I also reject the proposition contained at paragraph 17 of C&V's submissions (MFI 2, paragraph 17) that C&V would be entitled to put on further evidence if Metropolitan's ultimate argument were addressed.
15. I find that there is no procedural impediment in reaching the conclusion I have expressed that C&V did not prove that it was entitled to charge for work performed after 27 July 2018.
16. It will be apparent from the above reasons that I have found for Metropolitan, on this question, on the basis of causation.
17. If I am wrong on the finding of causation, I would need to consider Metropolitan's other argument regarding a failure to mitigate. In the way that Metropolitan informally (ie without a pleaded defence) articulated it, I understand that it argues that C&V did not take reasonable steps to reduce its loss or prevent its increase, a species of an absence mitigation that has been described as 'avoidable loss' [12] .
18. I have referred to the steps articulated by Metropolitan's Counsel. I agree with C&V that they were not only not steps identified in a pleading, but they were not identified with precision during the hearing. Further, they were not matters raised with Mr Pizzolato. I agree with C&V's submission that this asserted control upon the recovery of loss fails. The reality of the situation is that by 27 July 2018, C&V had been left with partially fabricated soldiers. There is nothing to suggest, say, that it could sell them on the market.
19. For completeness, I repeat a point I made (at [6] of My Judgment) that C&V did not run an action in restitution, concerning the value of the work and materials supplied.

Issue 2

1. The parties differed on only a few components of loss, and those differences are attributable to the dispute about issue 1.
2. During the hearing, Mr Sheldon supplied the Court with a table (MFI 3) which set out its position on damages on the premise (now substantiated) that I agreed with its position on issue 1.

Metropolitan's submissions

1. This part of Metropolitan's submissions were premised upon acceptance of its central contention that no allowance should be made for work after 27 July 2018.
2. The first of the items, for labour costs, gave rise to its own discrete issue. By its Counsel's written submissions (MFI 3), Metropolitan took issue with the referee's calculation ($16,856.13) when, on its view, the figure should have been $13,636.95. After I raised with Metropolitan's Counsel whether this truly was one of the real issues that the Court was statutorily obliged to determine (s 56 of the Civil Procedure Act 2005 (NSW)), what might be described as a 'quibble' raised by Metropolitan was abandoned.
3. I accept the referee's calculation therefore, so the figure for labour costs in Metropolitan's table (MFI 3) should be increased to $16,856.36. That carries the consequence that workshop, with reference to Metropolitan's table, usage costs (30.5% of labour costs) should increase to $5,141.19 and consumables ($5.5% of labour costs) should increase to $927.09.
4. The balance of the components of the loss are as agreed as follows:

• Materials ($12,793.37)
• 25.63% mark up on materials ($3,278.94)
• Excess materials ($2,560.43)

1. The sub-total of these various components is $41,557.38.
2. With the addition of GST ($4,155.74), the total is $45,713.12.
3. At the risk of stating the obvious, if I had found in favour of C&V on issue 1, I would have accepted C&V's submissions as to the components of the damages award set out in its written submissions (MFI 2, paragraph 19).

Costs

1. It is common ground that the Court of Appeal determined costs of the proceedings in the District Court, up to 21 September 2022. Costs of the proceeding at first instance thereafter remain open.
2. Metropolitan recognised in its written submissions that if the Court found that C&V was entitled to labour costs beyond 27 July 2018, it could not resist an order that it pays C&V's after 21 September 2022, which would include costs of the reference and this hearing. But it submitted that the position was different if, as has occurred, it succeeded in its central contention. On that footing it says that it is entitled to the costs of the reference and the hearing on the remittal.
3. With a qualification, I disagree. It is true that Metropolitan did succeed in reducing the quantum of its loss by dint of its success on the primary contention raised in the hearing. But Metropolitan's submission loses sight of the forensic context. Both parties agreed in the Court's referral out of calculations of labour costs, in relation to Building C (as it had in relation to Building B). The referee performed the invaluable role of quantifying components of losses on competing bases, to reflect the parties' respective positions.
4. C&V has succeeded in its claim for damages for breach of the contract in relation to Building C and, subject to the qualification I am about to turn to, costs (including the costs of the reference) should follow the event.
5. The qualification concerns this hearing. The bulk of the argument on loss was focussed on an argument that Metropolitan put in issue; being the point when loss was no longer recoverable. On this primary (and discrete and severable) point in this remittal, Metropolitan succeeded over the opposition of C&V.
6. In my view, the proper exercise of discretion results in a qualification of what would have been C&V's entitlement for costs of the hearing for assessment of damages.
7. I consider that Metropolitan should generally pay the costs of the proceeding (excluding the appeal proceeding) after 21 September 2022 save for the exception of the costs of the hearing on 7 November 2023; in which respect, Metropolitan should pay 50% of C&V Engineering's costs.
8. To state another contingent finding, if I found for C&V on issue 1, there would have been no qualification on the costs order: Metropolitan would, in that event, pay all of C&V's costs of the proceeding after 21 September 2022.

Interest

1. C & V cited order (5) made by the Court of Appeal on 24 July 2023, effectively increasing the order for interest on the judgment sum in respect to Building B. It says it is entitled to have the judgment of $50,783.28 increased to bring the pre-judgment interest up to the date of judgment (21 September 2022) with the pre-judgment sum being $9,920.34.
2. Metropolitan did not oppose that order for interest. It should be made.
3. Metropolitan also did not oppose, in principle, C&V's entitlement to pre-judgment interest on damages for breach of contract C. It was right not to do so. That interest, under s 100 of the Civil Procedure Act 2005 (NSW) is payable on the judgment sum of $45,713.12, from 4 September 2018.

Release of security

1. Orders were made prior to the hearing for C&V to provide security for a total of $100,000 by payment into Court. It seeks release of those monies.
2. Metropolitan did not resist that order. That should also be made.

Orders

1. For the foregoing reasons, the Court's orders are: 1. To the extent necessary, and conformably with these reasons, pursuant to r 20.24(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW), the referee's report 28 September 2023 is adopted. 2. Judgment for the plaintiff in relation to the Building C contract for the sum of $45,713.12. 3. Order the defendant to pay interest under s 100 of the Civil Procedure Act 2005 (NSW) on the judgment sum referred to in order 2, from 4 September 2018. 4. Order that the defendant pay interest in the judgment sum for Building B ($50,783.28) under s 100 of the Civil Procedure Act 2005 (NSW) in the sum of $9,920.34 as at 21 September 2018. 5. The defendant is to pay the plaintiff's costs of the proceeding (excluding, for the avoidance of doubt, costs orders made by the Court of Appeal) after 21 September 2022, with the exception of the plaintiff's costs of its preparation and attendance at the hearing of the remittal on 7 November 2023, as to which the defendant is to pay the plaintiff 50% of those specific costs. 6. The funds representing security paid into Court by the plaintiff during the proceeding are to be released forthwith.
2. I will give the parties opportunity to consider the calculations identified in these reasons. The parties have liberty to apply on 3 days' notice.

Endnotes

1. C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd [2022] NSWDC 154 ('My Judgment')
2. C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd (No.3) [2022] NSWDC 421.
3. C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd [2023] NSWCA 167 (24 July 2023).
4. The Court of Appeal also varied the costs order at first instance so that C&V Engineering Services Pty Ltd received all of its costs of the proceeding in the District Court up to 21 September 2022; whilst the further costs in the proceeding were to be the subject of further order.
5. C&V Engineering Services Pty Ltd v Metropolitan Demolitions Pty Ltd (No.2) [2023] NSWCA 240 at [40]
6. Chappel v Hart (1998) 195 CLR 232 per Kirby J at [93(4)]
7. Heydon [26-540], p 952, citing Lexmead (Basingstoke) Ltd v Lewis [1982] AC 225 per Lord Diplock at 276-277, where a defendant in a proceeding failed in a claim against a third party notwithstanding that he could establish the latter's breaches of warranty; when it was his own (negligent) wrongful conduct that gave rise to his liability to the plaintiff.
8. Allianz v Waterbrook [2009] NSWCA 224 per Ipp JA (Hodgson JA agreeing) at [105]. At [108], Ipp JA cited Lexmead (Basingstroke).
9. H L A Hart & T Honore, Causation in the Law, 2nd ed, Clarendon Press, 1985, p 136, approved in Bennett v Minister of Community Welfare (1992) 176 CLR 408 per McHugh J at [429]-[430] and Roncevic v Repatriation Commission (2005) 222 CLR 115 per Kirby J at [78].
10. TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130 at 138.
11. An extract of his affidavit evidence appeared at Exhibit B (CB 118-121)
12. Tasman Capital Pty Ltd v Sinclair (2008) 75 NSWLR 1 per Giles JA (McColl JA and Young CJ in Eq agreeing) at [72] 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: 10 November 2023