(3) Apartments had not asserted that there was some relevant ambiguity.
76 As I have said, the referee considered these issues by reference to the decisions in Codelfa and Royal Botanic Gardens Trust. His consideration of the issues is to be found in R 1/105-131, and his analysis of the significance of his conclusion is found in R 1/132-134.
77 Apartments' submission to the referee, as recorded in R 1/105, was that in interpreting the management agreement and the design and construction contract, it was necessary to "have regard to the factual matrix surrounding the contracts to determine the objective intentions of the parties as expressed in the contract documents". It relied on the speech of Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989. That submission misstated what his Lordship said. He said, at 995-996, that it was legitimate to have regard to the surrounding circumstances as part of the process of ascertaining "the commercial purpose of the contract" - something that "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
78 In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, Stephen, Jacobs and Mason JJ said at 429 that evidence of surrounding circumstances - "mutually known facts" - was admissible for a number of purposes. One was to identify the meaning of a descriptive term used in the contract. Another was that evidence of the genesis and objective aim of a transaction might show that the attribution of a strict legal meaning to the contract would make the transaction futile.
79 In Codelfa, Mason J considered the authorities and concluded at 352 that evidence of surrounding circumstances was admissible as an aid to interpretation where the language of the contract was ambiguous or open to more than one meaning. But, his Honour said, it was not admissible to contradict the plain meaning of the contract. He said:
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties although, as we have seen, if the facts are notorious knowledge of them will be presumed."
80 Stephen and Wilson JJ agreed with this aspect of Mason J's reasons and Brennan J expressed a similar view. His Honour referred to surrounding circumstances (known to both parties) and their capacity to illuminate the meaning of expressions in the contract. He said:
"The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used. 'The time has long past', Lord Wilberforce said in Prenn v Simmonds …, 'when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations'. Both the internal and extrinsic context in which a word or phrase is used may throw light upon the meaning with which the parties must be taken to have used it, though an extrinsic fact known to only one of the contracting parties can shed no light upon the meaning with which that word or phrase was used by the other or others."
81 As the referee recorded at R1/123, Apartments submitted that "things" had moved since Codelfa was decided. It relied (R1/124) on the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.
82 The High Court considered Codelfa, and decisions since then including Investors Compensation Scheme, in Royal Botanic Gardens Trust. At 445 [39], Gleeson CJ and Gaudron, McHugh, Gummow and Hayne JJ referred to the possibility that the House of Lords in Investors Compensation Scheme and other cases had taken a broader view of the admissibility and function of background facts than was taken in Codelfa. Their Honours did not decide whether that was so and, if so, whether those views should be preferred to what had been said in Codelfa. They said:
"Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa."
83 Kirby J, who dissented in that he found an ambiguity in the relevant contract (the other members of the Court did not) nonetheless confirmed at 456 [104] that "contextual materials and extrinsic evidence" were still to be used in the manner stated by Mason J in Codelfa at 352, and expressed, on this point, his agreement with the joint reasons at 445 [39].
84 The referee concluded at R1/132 that "absent any ambiguity in the Contract, I do not consider that regard can be had to the material in [the prospectus and exhibit Y] or, indeed, in other documents, for the purpose of determining what was the obligation of Constructions under the contract. Those obligations will emerge from the Contract itself."
85 The referee was correct in this conclusion.
86 The referee did not conclude that evidence of background - mutually known surrounding circumstances - was inadmissible. He concluded, as I have indicated, that it was only relevant to the process of interpretation where there was some relevant ambiguity.
87 The referee did not find any relevant ambiguity in the terms of the design and construction contract. Apartments criticised this, pointing out that at R1/893, the referee said that there was "clearly room to argue that there is an inconsistency between the requirement for finishes set forth in Schedule 2 and the terms of the Contract." Its submission does not recognise that, in the following sentence, the referee concluded that, as a matter of construction, it was the terms of the contract - specifically cl 6.1, requiring Constructions to "carry out and complete the Works to accord with the Design Documents and the Principal's Project Requirements, that prevailed". The referee concluded that "as a matter of construction, these provisions override the standard of finishes". In other words, the referee found that upon the proper construction of the contract, there was no relevant ambiguity.
88 Thus, Apartments' submission as to the inconsistency misstates, by selective quotation, what it was that the referee said on this point; and, more importantly, overlooks the fact that the referee, by a process of construction, concluded that the possible ambiguity (or "inconsistency") did not exist.
89 The referee may or may not have been correct in accepting (R1/130) that Apartments never asserted that there was any ambiguity in the Management Agreement. However, he said also that Apartments had not "established" that there was any such ambiguity. The submissions that Apartments made pointed to one example of "inconsistency" (which, I am prepared to assume, may be equated to at least potential ambiguity) in the design and construction contract. They did not point to any element of ambiguity in the management agreement. More importantly, Apartments has not established that there was any relevant ambiguity in the management agreement (or, for that matter, in the design and construction contract).
90 Thus, even if the referee had erred in the particular respect referred to in R1/130 - and, if I may say so, I doubt that he did - it goes nowhere.
91 In truth, it is apparent that Apartments relied on extrinsic material - the prospectuses and the REA valuation - not to resolve ambiguities in the design and construction contract, but to impose on Constructions a higher standard of obligation in relation to finishes and inclusions. There may perhaps have been some justification for this approach if the design and construction contract were silent on the standard of inclusions and finishes. But it was not. In those circumstances, I think, the referee was correct to say as he did, at R1/132, that the obligations of Constructions are to be found in the design and construction contract itself.
92 For this aspect of Apartments' case to have been made good, it would be necessary for it to have pleaded that the design and construction contracts comprised exhibit Y and the relevant terms of the prospectuses and the REA valuation as well as the document of 31 August 2000, or that those other documents were somehow incorporated into the written contract of 31 August 2000. That is not how Constructions pleaded its case. Paragraph 1 of its further amended statement of claim pleaded "a contract made on 31 August 2000", whereby Constructions agreed "to design and construct certain building works" at the Chocolate Factory site. Paragraph 3 pleaded a number of express terms by reference to schedule 1; all those express terms are express terms of the written contract dated 31 August 2000. Paragraph 4 pleaded an implied term to hand over keys, manuals, guarantees and documents. That was not particularised as arising from the earlier material.
93 Paragraph 43B pleaded that until Apartments and Constructions entered into the design and construction contract (of 31 August 2000) they "had no binding construction contract for the Project". An alternative case was pleaded commencing at para 48, asserting that if there were a binding contract prior to 31 August 2000, it was (in substance) exhibit Y. The particulars asserted that the terms of that contract "are to the extent known to CFAL identified in the prospectuses". However, as I have said, the referee found that Apartments had not proved that there was a binding contract prior to 31 August 2000, and this finding is not challenged.
94 Thus, Apartments did not plead, and it is not open to it now to assert (as in some respects its submissions appear to do), that the design and construction contract in some way incorporated terms derived from exhibit Y, the prospectuses or the REA valuation. Neither, for the reasons given above (which, in essence, replicate those given by the referee), are the terms of those documents available as an aid to the interpretation of the design and construction contract.
Finishes and inclusions
95 I have referred in para [86] above to the requirements of cl 6.1 of the contract. The "Design Documents" referred to therein were defined to mean "[t]he drawings, specifications and other relevant documents … listed in Schedule 3". The "Principal's Project Requirements" were defined as "[t]he written summary or outline of the Principal's Requirements for the Works described in the documents in schedules 1, 2 and 3".
96 Schedule 1 required the works to be "generally in accordance with the Principal's Project Requirements shown in Schedule 2 and the Design Documents listed in Schedule 3". Constructions was entitled to use "alternative details to those shown in the documents" as long as those changes did not "materially affect" internal or external appearance, views or aspect, dimensions and any existing contracts for sale.
97 By schedule 2, the "standard of finishes" was required to "comply with the materials, equipment and samples used in the construction of the display apartment (Apartment 111) which has been built on site."
98 The referee found (R1/871) that low voltage down lights were included in the kitchen, living room and dining room of apartment 111, and oyster fittings in its bedrooms.
99 The referee noted at R1/874 that the electrical services specification "specified the installation of batten lights and the LV down lights in the various apartment types." That specification (which formed part of the "Design Documents" referred to in cl 6.1) was inconsistent with the way in which LV down lights and oyster fittings (or batten lights) had been installed in apartment 111.
100 It was against that background that the referee in R1/893 referred to the possibility of inconsistency between the requirement for finishes set out in schedule 2 (by reference to apartment 111) and the terms of the contract. I have referred to this, and to the referee's resolution of that possible inconsistency, in para [86] above.
101 In substance, the referee concluded that the Design Documents prevailed, in so far as the location of (in this case) LV down lights and oyster fittings (or batten lights) was concerned, and that schedule 2 (incorporating the standard of finishes understood by reference to apartment 111) governed the quality, or type, of each kind of fitting where, in accordance with the Design Documents, one or the other was to be installed. Thus, the electrical specification prescribed the location of LV down lights or batten lights (as the case may be). Schedule 2 prescribed the standard or quality of LV down lights and batten lights wherever, respectively, according to the terms of the electrical specification, each was to be installed.
102 Apartments submitted that the referee's approach to construction was incorrect. On its face, this issue would appear to involve a question of law - namely, the proper interpretation of the design and construction contract, and the proper resolution of an apparent inconsistency within it. Nonetheless, Apartments' submissions strayed well beyond this, and included assertions such as that "the Referee patently misunderstood the difference in functionality of the different types of light fittings" (Apartments' outline, para 124). Even if it be assumed that this is so - and the submission that follows does no more than pick a few little grains out of the vast mullock heap of evidence, and seek to draw significance from the fact that the referee failed to refer to them - it cannot demonstrate an error of law. Nor is it shown how any such factual error could contribute to an error of law. The reality, I think, is that this suggested error is intertwined with the suggested error relating to the referee's failure to have regard to exhibit Y, the prospectuses and the REA valuation in ascertaining the nature and extent of Constructions' obligations under the design and construction contract.
103 I think that the referee's approach was correct. In Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99, Gibbs J, in an oft cited paragraph at 109-110, set out the approach that a court should take in construing a written contract. He said that, in endeavouring to discover the intention of the parties from the words of the contract, regard should be had to the whole of it, and provisions should be construed, if possible, to render them "all harmonious one with another". The referee referred to this passage (although in another context) at R1/129. I think that his approach to construction, in seeking to reconcile the provisions of cl 6.1 of the design and construction contract and schedules 1, 2 and 3 to it, is consistent with the approach outlined by Gibbs J. The referee's construction means that each part of the contract has work to do. Further, it means that there is no internal inconsistency. If the construction favoured by Apartments were to be adopted, there would be some inconsistency, as the referee pointed out, between cl 6.1 (and the Design Documents in schedule 3) on the one hand, and schedule 2 on the other. The referee's construction avoids this, whilst as I have said giving proper work to each to do. Where (as is the case here) an available alternative is open, a construction should be avoided that leads to ambiguity or inconsistency.
Reduction of parapet height
104 The existing building had a parapet at level 4. The height of that parapet was such that, without some modification, it would have impeded views from apartments on that level. Constructions' position was that it was not required under the design and construction contract to reduce the parapet height. In the result, views were improved by the expedient of increasing the floor levels inside the parapet.
105 The referee dealt with this at R1/902-930. He found that there was no contractual obligation on Constructions to reduce the parapet height (R1/912). He then turned to work that was done. This included variation order 13, to increase the floor height in selected areas of level 4; and variation order 14, to reduce the height of approximately 6 metres of the parapet on level 4.
106 The referee noted that both variation orders were issued by Apartments on its letterhead and authorised by Mr Coleman, a director (R1/922 for VO13 and R1/920 for VO14). These variations were authorised against the background, as found by the referee, that the board of Apartments took the decision not to reduce the height of the parapet (R1/919 - presumably, except for the 6 metre length that was reduced pursuant to VO14). The referee also noted that there was no evidence that the drawings (which would form part of the Design Documents) called for the reduction in height of the parapet (R919, 927).
107 Apartments' submissions on this issue confuse questions of law - which are susceptible of examination on an application to adopt a report - and questions of fact. Although these submissions incant the formula "a finding that no reasonable tribunal could have arrived at", it is apparent even from the written submissions, and was made crystal clear during oral submissions, that there was a question of fact to which different answers could be given. The referee analysed the evidence in an appropriate way. It may be that he did not refer to every piece of it; but it is not necessary that this should be done.
108 To the extent that error of law is asserted, Apartments faces the difficulty that the variations authorised by it are inconsistent with its case that there was a contractual obligation to reduce the parapet height, and that the purpose to be achieved - maximising views - was intended to be achieved (and nothing else was intended to be achieved) by those variations.
109 In so far as the question of law depends on an interpretation of the relevant drawings, it is answered by the referee's conclusion at R1/927 that no witness "gave evidence of any drawing which called for that reduction in height".
110 In so far as the question involves a dispute of fact that, for the reason that I have indicated, was something for the referee to consider; and it is my view that his consideration of it was appropriate.
111 The final submission on this point was:
"The Referee ignored legal principles in failing himself to apply a scale ruler to the drawings which were in evidence in order to enable himself to identify the height of parapet shown in them." (Apartments' outline, para 137(d)).
112 None of the cases to which I have referred suggest that there is any legal principle requiring a referee to apply a scale ruler to drawings to ascertain some fact; particularly in circumstances where the party asserting the existence of that legal principle had the opportunity, through an appropriate qualified witness, to identify both the relevant drawings and the outcome of the exercise.
Management's duty to Apartments
113 Apartments submitted (Apartments' outline, para 93) that "[t]he nature and extent of Management's duty to CFAL could only be correctly understood and assessed by reference to material that established what the parties intended the Project to be."
114 This appears to be related to the submission - which I have already rejected - that the referee erred in law by failing to take account of extrinsic material in ascertaining the obligations of Constructions under the design and construction contract. To the extent that it is but a variant of that submission (or that submission adapted to the management agreement) it must fail.
115 However, it is wrong to say that the referee did not have regard to the extrinsic material (exhibit Y, the prospectus and the REA valuation) in considering the nature and extent of Management's obligations under the management agreement. More than once, he found in favour of Apartments on the basis that it had got less under the design and construction contract of 31 August 2000 than it would have got under exhibit Y (had exhibit Y been binding), and that Management had failed to take appropriate steps to seek to protect Apartments' position: see R1/784, where the matters are summarised and where the referee concludes, as I have noted, that Apartments is entitled to recover the relevant amounts from Management.
Implied term
116 I have set out paragraph 22(a) (including the relevant particulars) of the further amended statement of claim in para [68] above.
117 The definition of "project" in para 43A is "an undertaking to acquire an existing industrial site at 8 Bridge Road, Stanmore and to develop the same by conversion into 87 quality residential apartments to be known as the Chocolate Factory Apartments and selling the strata title units in the building following the conversion of the Building".
118 The referee concluded at R1/1089-1090 that the term should not be implied. He dealt with "the five requirements for the implication of a term": ie, those requirements identified by the majority of the Privy Council in B P Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26, and discussed and applied in innumerable cases since then (see, by way of example only, Mason J in Codelfa at 347).
119 In Breen v Williams (1996) 186 CLR 71, Gaudron and McHugh JJ discussed the bases upon which a term may be implied into a contract (by law or in fact) at 102-103. They said that, except for terms applicable by trade custom, the courts will only imply a term in fact when it is necessary to give efficacy to the contract. Implication by law, however, arises from the nature of the contract. Their Honours said (omitting citations):
"The common law draws a distinction between terms which are implied in fact and terms which are implied by law. Leaving aside terms that are presumed to apply because of the customer for trade or business, the courts will only imply a term in fact when it is necessary to give efficacy to the contract … . A term implied in fact purports to give effect to the presumed intention of the parties to the contract in respect of a matter that they have not mentioned but on which presumably they would have agreed should be part of the contract … . A term implied by law on the other hand arises from the nature, type or class of contract in question … . Some terms are implied by statutes in contracts of a particular class, for example, money lending and home building contracts. Such terms give effect to social and economic policies which the legislature thinks are necessary to protect or promote the rights of one party to that class of contract. Other terms are implied by the common law because, although originally based on the intentions of parties to specific contracts of particular descriptions, they 'become so much a part of the common understanding as to be imported into all transactions of the particular description' … . Many of these terms are implied to prevent 'the enjoyment of the rights conferred by the contract [being] rendered nugatory, worthless, or, perhaps … seriously undermined', the notion of necessity being central to the rationale for such an implication … . The distinction between terms implied by law and terms implied in fact can tend in practice "to merge imperceptibly into each other … ".
120 In the present case, as I have indicated, Apartments relied on both implication by law and implication in fact; but the referee appears to have dealt with the question as being only one of implication of fact.
121 I have no doubt that there was an implied term of the management agreement that Management would perform its functions and fulfil its responsibilities with proper skill and care. Ordinarily, such a term would be implied by law, as an incident of a contract to provide services. In this case, the management agreement specified the services to be provided, but did not expressly specify that they were to be provided with proper skill and care.
122 However, it does not follow from what I have said that a term of the amplitude of that pleaded (which goes far beyond what I think would be implied by law) should be implied into the management agreement, whether by law or in fact. The referee said at R 1/1089 that "this implied term seeks … , at least in part, … to bring about a contractual situation whereby Management guaranteed the carrying out of the work as envisaged in the prospectuses." Apartments criticises this interpretation of the suggested term. But I think, in substance, that the referee was correct.
123 It may very well be - and may be assumed for the purposes of argument - that Management and Apartments had it in mind, when they made the management agreement on 24 December 1999, that Apartments' objectives in relation to the project were those set out in para 22(a): to undertake the work to approved plans and specifications, with the indicated level of finish and inclusions etc to the projected financial outcome. But it does not follow that it was a term of the agreement, implied by law or in fact, that Management would perform its functions and fulfil its responsibilities, with proper professional skill and care, to "enable" those ends to be achieved. The verb "enable" has a number of meanings, including "to make able, give power, means or ability to do something; or to make the doing of something possible or easy" (see The Macquarie Dictionary); or "to empower, or supply with means or opportunities" (see The Shorter Oxford Dictionary). At one end of the range of meanings, the verb may mean little more than "assist". At the other, it may come close to "ensure". In context, I think, the suggested term does have the flavour that Management would in effect underwrite, or guarantee to Apartments the outcome of, the project.
124 That the referee was correct to characterise the implied term as one directed to achieving the outcome referred to in the prospectuses is confirmed by Apartments' own written submissions. In para 95 of its outline, Apartments refers to "significant factual issues relating to whether Management had complied with its obligations under [the] implied term … in respect of and the management of the Project to achieve the outcomes referred to in prospectuses" (emphasis supplied). Thus, it appears, Apartments does view the implied term as directed to achievement of the outcomes described in the prospectuses: including as to dates, times, prices and return.
125 The referee evidently so understood Apartments' case, because in R1/1089 he referred to the difficulty that the prospectuses were issued on 14 January 2000 - three weeks after the management agreement was made (on 24 December 1999). He referred to the fact that, although Management prepared the prospectuses, "others had the task of performing the due diligence in relation to them and, ultimately, signing off on them." Apartments directed substantial argument to this reasoning. But that argument missed the point. The point was not whether or not (as Apartments appeared to consider) the prospectuses were adequate or whether there had been appropriate due diligence. The point was, simply, that, as the referee concluded, it was not reasonable or equitable to imply into a contact made on 24 December 1999 an obligation on one party to "enable" the other to achieve the outcomes set out in prospectuses that had not then been issued, and that were not issued until three weeks later. Like the referee, I think that this is a significant impediment to the success of the implied term case.
126 If that is the proper interpretation of the term then it should not be implied either by law or in fact. No authority was relied upon to suggest that such a term would be implied by law; and I do not think (to adapt the words of Gaudron and McHugh JJ in Breen) that there is the underlying notion of necessity for such an implication in a contract of this kind.
127 Equally, if one turns to implications in fact, I think that the referee was correct to conclude that the five requirements were not met. It may be that, of those, business efficacy is the most important; and I do not think that implication in fact of a term having the detail set out in para 22(a) is needed to give business efficacy to the management agreement. Further, and without wishing to go in detail to each of the five requirements, the inherent ambiguity in the verb "enable", to which I have referred, would contradict the requirement that the term must be capable of clear expression.
128 It is also worth noting that the definition of "the Project", referring to para 44 of the further amended statement of claim, is inconsistent with the definition of that expression in the management agreement ("the construction of a strata title apartment complex on the Land to be known as the Chocolate Factory Apartments and selling the strata title units.") Further, the absolute nature of the obligation as alleged would appear to be inconsistent with para (e) of the services set out in schedule 1:
"Ensure that all sales of Strata Title Lots are conducted in a proper professional manner and in a manner that is intended to maximise the returns to CFA from those sales."
129 Apartments referred to what it called the uncontroverted evidence of an expert called by it, Mr Richard Nixon, who gave evidence of the steps that, in his opinion, a reasonable and competent project manager should have taken for the management of the project (R1/399). The referee summarised Mr Nixon's evidence of the role of a project manager at R1/402. According to the referee, "he said that, to his knowledge, there was no industry definition, nor regulatory definition, which defined the role, services or actions to be provided by a project manager." Mr Nixon "recognised that the most notable constraints would be the terms of the engagement of such a manager and that further factors influencing the actions to be undertaken would be the type and scope of the Project, together with the requirement to undertake the role of contract administration." Mr Nixon said further, according to the referee, that cl (a) of schedule 1 to the management agreement "required Management to provide all project management services reasonable or necessary for the Project."
130 Paragraph (a) of schedule 1 provides as follows:
"The Manager is responsible for overseeing all aspects of the management of CFA and the Project including, but not limited to, the arranging and managing of all CFA funding, the overseeing of the project construction and the preparation of monthly reports to the directors and shareholders."
131 If, as Apartments noted, Mr Nixon's evidence was uncontroverted; and if, as Apartments apparently contends, it should be accepted, it is an unpromising starting point for the implication of a term such as that alleged in para 22(a) of the further amended statement of claim. Firstly, the absence of "industry definition" would suggest that there is no basis for implication in law: because there is no basis that the term has become "so much a part of the common understanding as to be imported into all transactions of the particular description" (Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 449 (McHugh and Gummow JJ)).
132 Secondly, Mr Nixon's apparent view that para (a) of schedule 1 requires the provision of "all project management services reasonable or necessary for the Project" would appear to suggest that there is no need for the further implied term for which Apartments contends: ie, no need for the implication of that term to give business efficacy to the management agreement.
133 Thirdly, and perhaps most significantly, it does not appear from the referee's summary of Mr Nixon' evidence that Mr Nixon himself thought (if it were permissible for him to express such a thought) that the duties of a reasonable and competent project manager in a project of this kind would include that alleged in para 22(a) of the further amended statement of claim. Nor does Mr Nixon's evidence, as recounted by the referee, provide any other basis for concluding that the implication of the alleged term is necessary to give business efficacy to the contract.
134 I do not think that the referee erred in rejecting Apartments' case based upon the implied term alleged in para 22(a) of the further amended statement of claim. It follows that the referee did not err in failing "to consider and explore the significant factual issues relating to whether Management had complied with its obligations under that implied term" (Apartments' outline, para 95).