CONCRETE CONSTRUCTIONS GROUP v LITEVALE PTY LTD & ORS

CONCRETE CONSTRUCTIONS GROUP v LITEVALE PTY LTD & ORS - [2002] NSWSC 670 - NSWSC 2002 case summary — Zoe

COUNSEL : Plaintiff: R W Hunt Defendant: F Corsaro SC SOLICITORS : Plaintiff: Corrs Chambers Westgarth Defendant: Deacons CATCHWORDS : CONTRACT - dispute between builder and developer of shopping centre over status and content of contracts - whether additional work done by the builder was a legitimate 'variation' - ESTOPPEL - parties adhered to unexecuted contract - whether contract governed parties' relationship - AGENCY - parties to contract - TRADE PRACTICES - misleading and deceptive conduct - misrepresentation as to future matter - contractual promises as representations - intention or capacity to perform - conditional promises - complex contractual relations. Corporations Law LEGISLATION CITED : Fair Trading Act 1987 Land and Environment Court Act 1979 Trade Practices Act 1974 (Cth) Abigroup v Peninsula [2001] NSWSC 752 Accounting Systems 2000 (Developments) Pty Limited v CCH Australia Limited (1993) 42 FCR 470 Australian Tallow & Agri-Commodities Pty Ltd v Malaysia International Shipping Corporation (2001) 50 NSWLR 576 Balkin v Peck (1998) 43 NSWLR 706 Baulkham Hills Private Hospital Pty Ltd v G R Securities Pty Ltd (1986) 40 NSWLR 622 Bill Acceptance Corporation Ltd v GWA Limited (1983) 78 FLR 171 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Brenner & Anor v First Artists' Management Pty Ltd [1993] 2 VR 221 C H Magill v National Australia Bank Ltd [2001] NSWCA 221 City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 CASES CITED : Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326] McWilliam's Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 Ridgway & Anor v Consolidated Energy Corporation Pty Limited (1987) ATPR 40-754 Serrata Invest Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419 Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 Walter Constructions Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48 Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 Yorke v Lucas (1985) 158 CLR 661 DECISION : See [194]

[12]

• Issues 11-13: The plaintiff pleaded that the defendants were guilty of misleading and deceptive conduct in failing to tell the plaintiff that if it carried out the work for which the claim for payment is now due as authorised variations, it would not be paid for that work in circumstances where the corporate defendants became unable to pay due to an unexpected downturn in profits from rental income. The referee agreed with this submission as a breach of s 52 of the Trade Practices Act for the two corporate defendants and s 75B for the third defendant, awarding $580,440.15 in damages. • The referee determined that liability stemmed from an implied representation, made at the inception of the D+C 3 contract, to the effect that the 'developer' had the capacity to pay for variations in accordance with the contract, and the plaintiff entered the contract in reliance upon this representation and suffered loss when it was not paid. Section 51A of the Trade Practices Act was applied. • The referee's approach to the agency between the two corporate defendants doubted but not decided. Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 and Australian Tallow & Agri-Commodities Pty Ltd v Malaysia International Shipping Corporation (2001) 50 NSWLR 576 referred to. • It is not the law that every contractual promise has a superimposed implied representation as to ability to perform, either at the time of contract or some future date. Failure to keep a promise is not itself misleading or deceptive conduct. Whether s 52 has been contravened must be considered as at the time the contract is engaged in, and not by reference to subsequent events. Bill Aceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171 and Serrata Invest Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419 considered. • Section 51A does not say in what circumstances a representation as to a future matter shall be implied from a contractual promise. The section is only engaged after answering the prior questions concerning the nature of the implied representation and reliance. Futuretronics International Pty Ltd v Gadzhin [1992] 2 VR 217 and Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 considered. • A distinction is drawn between whether a contracting party is implicitly representing a present intention or capacity to perform, the latter being more difficult to show. There are policy reasons for restraint. • The very nature of post-contractual variations contemplates later dealings in which liability will stem from mutual assent later achieved. It may not be reasonable to infer from the complex promises alone that there was an immediate representation as to financial capacity to perform such obligations given that assent may be withheld or terms negotiated at the time variation comes into play. • It was not open to the referee to conclude that the contractual promises were also 'contractual representations' or that they had been relied upon as such by the plaintiff at the time of contract. Therefore the claim against the third defendant also falls away. • Section 51A did not deem the defendants' conduct unreasonable in the circumstances of this case.

[17]

The project 6 The plaintiff is now known as Walter Construction Group Limited. It is however convenient to refer to it as CCG, an abbreviation of its former name Concrete Constructions Group Ltd. CCG is the acronym used by the Referee. 7 CCG did the design and construction work (the Work) for the project. The Work commenced on 9 January 1995 and practical completion was achieved on 30 November 1995. 8 The Work involved the design and construction of a large shopping centre that included a department store, supermarket, speciality shops and on-site car parking for over 800 cars. The value of the Work, excluding variations, was nearly 25 million dollars and that sum was paid by instalments during 1995-1996. The Centre opened and is trading to this day. 9 At the relevant time the Proprietor was Vynotas Pty Ltd as trustee of the Norwich Real Property Unit Trust (Vynotas). 10 The first defendant Litevale Pty Ltd (Litevale) was a company specially formed for the project. 11 The second defendant ACN 010 753 965 Pty Ltd was formerly known as Consolidated Properties Ltd (CPL). It is a company related to Litevale. 12 The third defendant Mr O'Rorke (O'Rorke) was a director of the defendant companies at the relevant times. 13 In the proceedings, CCG sued the defendants for damages, interest, declarations and costs. The damages claims raised against the corporate defendants were causes of action in contract, restitution and for misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth). The contractual and restitutionary claims were in essence brought against the first and second defendants in the alternative because of uncertainty as to the identity of the party with whom CCG entered into relevant contractual relations. The Referee identified that party as Litevale, adding that Litevale contracted as agent for CPL (Referee's Report p124: hereafter R124). He concluded that the two companies are liable as "the Developer" on the contractual claims and this aspect of his determination is not, I understand it, in dispute except so far as it may bear upon the misleading and deceptive conduct claim discussed later in this judgment. 14 By its contractual and restitutionary causes of action CCG seeks to recover recompense for additional work or expenditure done or incurred in the project. The claims are pressed as contractual "Variations", alternatively on the basis of quantum meruit. The Referee has determined that the plaintiff CCG is entitled to an award against "the Developer" for $580,440.15 plus interest, on the basis of contractual "Variations". Numerous alternative and/or additional claims propounded in contract or restitution that were litigated in the Reference are recommended for dismissal. No party seeks to go behind the latter recommendations. 15 The claims under the Trade Practices Act were brought against the three defendants. In the case of Mr O'Rorke they are based upon an allegation of being "knowingly concerned" in the misleading conduct of the corporations of which he was a director (cf s75B(c)). All parties are content to adopt the Report to the extent that the Referee recommends dismissal of those claims. The defendants challenge those portions of the Report which propose upholding certain Trade Practices Act claims against them. The factual genesis of these claims is the inability of the corporate defendants (through lack of funds) to meet the contractual claims found against them. The Referee found that all three defendants participated in misleading or deceptive conduct in their failure to disclose such incapacity to pay at the time when CCG and Litevale were found to have adhered to a detailed Design and Construct (D+C) contract no later than March 1995. 16 The parties agree about the existence of such contract, but they disagree as to certain of its terms. The defendants dispute the findings of breaches of the Trade Practices Act. 17 The parties agree that the approach to be adopted in relation to contested applications concerning the adoption of referee's reports are to be found in cases such as Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549, Walter Constructions Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48 and Abigroup v Peninsula [2001] NSWSC 752.

[23]

The Referee's Report in outline 19 The Report is a model in the clarity of its expression, the logic of its structure and the detail of exposure of essential reasoning processes. 20 It has seven Parts. Part A - BACKGROUND sets out the current pleadings and preliminary information. 21 Part B - EVIDENTIARY ISSUES makes detailed findings as to the credibility of key witnesses, the impact of the plaintiff's failure to call a key witness (Mr Gomm) and other like issues. 22 Part C - PRELIMINARY ISSUES clarifies the matters pressed at the hearing and disposes of certain untenable points. 23 Part D - THE DESIGN AND CONSTRUCTION CONTRACT records the common ground that there was no executed design and construction contract. The Part proceeds to determine the existence, parties, date and essential terms of what I have described as the Interim D+C Contract. Some of these conclusions are challenged by the plaintiff. 24 Part E - CLAIMS makes findings concerning a number of specific claims, many of them subsidiary to the issues about the Interim D+C Contract or pleaded in the alternative. A number of claims advanced by CCG are dismissed. Since CCG wishes to take these matters no further it is sufficient to note that they included certain of the claims based upon restitutionary principles, variations, estoppels (R 316) and misleading conduct (R 318-336). Many of CCG's claims relating to variations and misleading conduct were also rejected. Only portions of the Referee's findings concerning these matters remain the subject of challenge in this Court and I shall deal with them at the appropriate places. 25 The Referee also rejected the claims for declaratory relief based upon a Deed of 9 November 1995 (R 337). This issue has not been reagitated. 26 The Referee upheld the consequential claims for interest on damages. 27 Part F - CROSS CLAIM determined that the various claims made in a cross-claim by the defendants against the plaintiff should be rejected. 28 Part G - COSTS determined that the issue of costs should be left to the Court.

[35]

Determination For the reasons set out above, I determine: 1. on 23 December 1994, CCG and the Developer reached agreement in the Development Agreement for CCG to carry out the design and construction of the Project in accordance with the Design Brief annexed thereto for the price of $24,910,000. That agreement was of the fourth class referred to above - the parties intended to be immediately bound by essential terms for the design and construction of the Project whilst also expecting to make a further contract containing additional terms, i.e. the terms of the Design and Construction Contract; 2. the Design and Construction Contract was between CCG and Litevale as agent for Consolidated Properties Limited; 3. the terms of the third version of the Design and Construction Contract issued by Litevale have application to govern the parties' relationship; 4. the Contract Sum was $24,910,000, including an amount of $320,000 for external roadworks; 5. the Design and Construction Contract did not contain any provisional sums, nor provision for the adjustment of provisional sums; 6. the Feasibility Comparisons do not form part of the D+C contract; 7. items of work not expressly included in the Final Cost Plan were not thereby excluded from CCG's design and construct obligations. Furthermore, the Final Cost Plan did not define nor limit CCG's obligations. CCG did not otherwise qualify, or exclude, its obligations under the Design And Construction Contract; 8. the Date for Practical Completion under the Design and Construction Contract was 22 January 1996; 9. additionally, the Plaintiff agreed to use its "best endeavours" to achieve Practical Completion by 18 December 1995; 10. the Design and Construction Contract did not entitle the Plaintiff to extensions of time for delays caused by wet weather (beyond the 20 day allowance the Plaintiff had included in its construction program) or by industrial conditions; 11. the Design and Construction Contract included the Design Brief annexed to the Development Agreement, rather than CCG's earlier "Draft" Design Brief; 12. the Plaintiff assumed the risk and responsibility of obtaining dispensation from the requirement for fire compartmentation of the building within the minor fees agreed for that work pursuant to the 3 November 1993 Agreement and without adjustment to the Contract Sum; 13. in any event, as separately determined, the Plaintiff is estopped by its conduct from denying the third version of the Design and Construction Contract applies and from asserting instead that another form of contract applies.

[39]

(b) implied terms in respect of: • completion within a reasonable time; • payment of reasonable remuneration for any variations required, including compartmentation or obtaining dispensation for it, Q1:100 stormwater, authorities costs, and landscaping or roadworks in excess of the provisional sums allowed. (R58) 43 A variant of the plaintiff's submission was that a communication from its Mr Coburn on 9 January 1995 had the effect of qualifying adherence to the formal D+C Contract in particular but critical respects, notably touching clauses 2.5(1), 4.5(1) and 13.3 of the D+C Contract. 44 The plaintiff submits that the Referee should have found that the content of the Interim D+C Contract had as its essential terms (PS 1 s34): (1) express terms that WALTER was to provide the scope of works allowed in the Final Cost Plan (understood by reference to the architectural drawings and instructions on which it was based) for a price of $24.59 million, with a further allowance of $320,000 for certain additional roadworks, which price excluded Q1:100 stormwater and authorities costs; (2) implied terms in respect of completion within a reasonable time and payment of reasonable remuneration for any variations required. 45 As to (2) the plaintiff adds that it is probably immaterial whether a term for completion with a reasonable time should be implied, rather than for a time expressly agreed, as the parties subsequently agreed on a date for practical completion of 22 January 1996. 46 Specifically as to issues 2, 3 and 4 the plaintiff submits in the alternative that the court should reject the Referee's findings to the effect that D+C 3 was agreed between the parties; and find instead that what was subsequently agreed, in addition to the Development Agreement, was in terms of D+C 3 with the following exceptions: (i) In respect of cl 2.5(1), there was no agreement on inclusion of the words "unexpectedly publicly" before the word "notified" in the third line of that sub-clause; (ii) There was no agreement that the procedural requirements in cl 2.8 were to be complied with: instead, what was agreed was that unless a variation claim was promptly rejected by Resource Coordination Partnership, the defendant's contract administrator, then the variation would be paid in an amount to be determined by later agreement; (iii) There was no agreement in respect of the dates in cl 4.3(1)(a); (iv) There was no agreement on the use of the word "unexpected" in cl 4.5.1(b) and claims for extension of time were to be limited to the delays specified in sub-paragraphs (a)-(d) of D+C 3; (v) There was no agreement in terms of cl 13.3 (ie the sole agreement clause). 47 The dispute between the parties as to the terms of the Interim D+C Contract is relevant to the issue as to whether clauses 2.5(1) and 2.8 of the D+C Contract were incorporated by reference into the Interim D+C Contract (as the defendants contend). This has adverse consequences to the plaintiff's case in so far as key claims for extra remuneration were rejected for non-compliance with the procedural regime laid down in cls 2.5(1) and 2.8. In some cases Litevale did not dispute that it requested alternative or accelerated performance, but in these the defendant asserts that it was not put on written notice that the request would lead to extra cost: compliance with the procedural regime to be found in cls 2.5 and 2.8 was an essential requisite (assuming of course that those clauses were part of the contractual matrix). There is also a flow-on effect in so far as the plaintiff's Trade Practices Act claims become harder to sustain if cl 2.5(1) was part of the contractual matrix from December 1994 onwards. 48 Having stated the issue and its importance the Referee addressed it from R61 onwards. He referred to some heads of agreement made on 3 November 1993, the Design Brief and the feasibility studies culminating in a Final Cost Plan prepared by CCG's Mr MacGinley. 49 Then followed a detailed analysis of the Development Agreement which it is appropriate to set out in full (R69-73):

[42]

Amongst other things, this Development Agreement: 1. defined the "Builder" as follows (clause 1.1): "'Builder' means Concrete Constructions (Group Pty Ltd) (sic) or other builder as the Developer may appoint to construct the Works with the consent of the Proprietor in accordance with clause 8.4 that consent not to be unreasonably withheld)." ; 2. contemplated a "Construction Contract" would be entered into between the Developer, Litevale and the Builder, CCG for the Works (clause 1.1): "'Construction Contract' means the contract to be entered between the Developer and the Builder for the construction of the Works." ; 3. defined the "Construction Cost" as the aggregate of $24,910,000, the valuation of variations and any delay or acceleration costs (clause 1.1); 4. defined "Construction Documentation" as "the Design Brief together with the Design Documentation ..." (clause 1.1); 5. defined the "Design Brief" as the design brief for the Works "prepared by the Developer and accepted by the Proprietor, a copy of which forms Annexure 'B'" (clause 1.1); 6. defined the "Design Documentation" as (clause 1.1): "... the drawings, specifications and other documents prepared by the Developer (or any other person on its behalf) in accordance with the provisions of this Agreement, for, and necessary to effect, the Works, including, without limitation, the Design Brief." ; 7. defined the "Date for Practical Completion" as 31 October 1995 "unless revised under this Agreement" (clause 1.1); 8. defined the "Works" to include both design and construction (clause 1.1): "'Works' means the work which the Developer is required to execute and carry out under this Agreement and the materials the Developer is to supply to: (a) design and construct the works described in the Construction Documentation including any works effected by the Builder not specifically included within the Construction Documentation, but which would be required by good building practice or which would be included by necessary reference to the Building Standard; and (b) effect any Variation or changes under clauses 8.24 and 8.25; and (c) comply with lawful requirements of Council or any Governmental Agency for the Project, on the Site in accordance with this Agreement."; 9. provided that the Developer, Litevale was to develop the site for the Proprietor, Vynotas, warrant that the design would be "reasonably proper, adequate and fit for the purpose of a sub-regional shopping centre to a standard being that of the Benchmark Standard" and deliver to Vynotas "an operating shopping centre built in accordance with the Construction Documentation, Practically Complete, and with all approvals and consents required from all Government Agencies" on or before the "Opening Day" (clause 2.1); 10. stipulated that the Developer, Litevale's obligations included - applying for and obtaining all approvals, consents, licences and permits for the execution and use of the Works; complying with the requirements of statutes, regulations, codes, by-law or orders of any Government Agency, including without limitation the Development Approval; paying fees (etc) incurred in connection with consents, approvals, licences and permits; endeavouring to obtain leases for the Project; and ensuring that on the Opening Day there were no outstanding requisitions from the Council or Governmental Agencies (clause 4); 11. provided warranties to the Proprietor, Vynotas from the Developer, Litevale and the Builder, CCG regarding the Design Brief and the design and construction of the Works (clause 5.1): "The Developer and the Builder each warrant to the Proprietor, that: 5.1.1 they have checked and considered the Design Brief and are satisfied that it is adequate and suitable for the purposes of designing and constructing the Works; 5.1.2 they have each made their own review and evaluation of the suitability of the Design Brief for the Project ...; 5.1.3 the Works will be designed with due skill and care, in accordance with the Design Brief and, where necessary, because of a lack of specificity in the Construction Documentation, at least to the Benchmark Standard; 5.1.4 the design for the Works adopted by the Developer ... will be in accordance with the requirements of this Agreement and will be reasonably proper, adequate and fit for the purpose of a sub-regional shopping centre to a standard at least that of the Benchmark Standard; and 5.1.5 construction in accordance with the design for the Works adopted by the Developer will, at the least, accord with the standards specified in this Agreement including the Benchmark Standard."; 12. provided that the Builder's responsibility for both design and construction would be unaffected by certain factors (clause 5.2.2): "The Builder agrees that its obligations under this Agreement, including the warranties given in sub-clause 5.1 shall remain unaffected and that it shall bear and continue to bear full liability and responsibility for the design and construction of the Works notwithstanding: (a) the Proprietor's acceptance of the Design Brief; (b) any comment or direction upon, review or acceptance of, consent to proceed with or request to vary the Construction Documentation by the Superintendent or the Proprietor; or (c) the engagement by the Builder of the Consultants for assisting it in completing the design of the Works." 13. contained further warranties from the Developer and the Builder with respect to construction (clause 8.2): "The Developer and the Builder each warrant to the Proprietor that: 8.2.1 the Works as constructed, will be suitable for use as and fit for the purpose of a sub-regional shopping centre of a standard at least that of the Benchmark Standard; and 8.2.2 the Works will be constructed in a proper and workmanlike manner, under adequate and competent supervision, in accordance with the Construction Documentation and where necessary, because of a lack of specificity in the Construction Documentation, at least to the Benchmark Standard; 8.2.3 the Works will be constructed using materials of merchantable quality which are fit for their purpose; and 8.2.4 they will use due skill and care in carrying out their respective obligations under this Agreement." 14. contained the Proprietor, Vynotas' agreement to the Developer, Litevale engaging the Builder, CCG to effect the Works under the Construction Contract (clause 8.4): "The Proprietor agrees to the Developer engaging the Builder to effect the Works under the Construction Contract, but the Proprietor's consent given does not relieve the Developer from any of its obligations under this Agreement." ; 15. provided that the Proprietor, Vynotas was entitled to retain (as part of the Minimum Retained Sum) an amount of $2,500,000.00 "which may then be held by the Proprietor to secure the Developer's obligations under the Rent Performance Deed" (clause 11.13); 16. contained a formula for calculating the amount the Proprietor, Vynotas would be obliged to pay the Developer, Litevale (clause 12); 17. provided that Vynotas entered into the Development Agreement as Trustee of the Norwich Real Property Trust and on the basis it would not be liable to the extent it was not entitled to be indemnified "in respect of any liability incurred by it as Trustee of the Trust" (clause 15.14); 18. contained covenants from the Builder, CCG to the Proprietor, Vynotas regarding CCG's performance of the Construction Contract Works (clause 16.1): "The Builder covenants in favour of the Proprietor that: 16.1.1 it will carry out the Construction Contract Works: (a) in a tradesmanlike manner; (b) with materials of merchantable quality which are fit for their purpose; (c) with proper skill and care; and (d) in accordance with the Construction Contract." 19. contained covenants from the Builder, CCG to the Proprietor, Vynotas that it would not terminate the Construction Contract without giving the Proprietor 21 days prior written notice and that, at the Proprietor's written request, it would novate the Construction Contract to the Proprietor (clause 16.1.2 - 16.1.7); 20. contained an unconditional guarantee from the Guarantor, Consolidated to the Proprietor, Vynotas for the Developer, Litevale's performance of its obligations under the Development Agreement (clause 17). The Guarantor's obligations to the Proprietor included performing any obligation breached by the Developer and indemnifying the Proprietor against any loss, damage, expense or cost incurred by the Proprietor as a consequence of the Developer's default (clause 17.2); 21. annexed the "Design Brief" setting out the "basic parameters" applicable to the design and construction of the Project (Annexure B, Design Brief). This Design Brief included an obligation that standards of finishes and levels of services would be in accordance with a benchmark standard of the Logan Hyperdrome (including improvements since its completion) to "provide a completed and functioning first class sub-regional shopping centre".

[54]

From an examination of their terms, I consider the second and third drafts of the Design and Construction Contract were adequate and competent to govern the parties' relationship with respect to CCG's design and construction of the Project. 53 The Referee then examined the minutes of site meetings attended by representatives of the parties. He observed that there was no minute of any discussion, issue, or outstanding problem with respect to the D+C contract. Rather, the PCG minutes record project administration, including administration of the D+C contract (R83-4). The Referee observed the CCG's own Design Meeting minutes state that the D+C contract was agreed in principle by 28 March 1995 and also showed that the status of the D+C contract disappeared as an item in the minutes from 9 May 1995 onwards (R85). 54 At R88ff the Referee summarised additional evidence that had been taken into account in considering the terms of the D+C contract. In particular he referred to the evidence of Mr Coburn concerning his objections to particular parts of D+C 2 raised in January 1995 (R89-91). The analysis and findings in this and the succeeding pages show that the Referee paid close attention to the credibility of the respective witnesses and the fit of their evidence (in 2000) with the documented events of 1995. The detail will speak for itself. It has not been challenged in its particulars. The findings rest firmly on the evidence and were clearly open to the Referee who saw the witnesses under examination and cross-examination. 55 The Referee referred to leading cases in a manner that has not been the subject of any critical comment. These included the reference to the case law recognising a fourth classification of contracts involving negotiations (especially Baulkham Hills Private Hospital Pty Ltd v CG Securities Pty Ltd (1986) 40 NSWLR 622 (McLelland J), 631 (Court of Appeal)). The Referee also cited case law demonstrating the propriety of examining subsequent conduct as one means of determining whether, and if so when, negotiating parties moved into a contractual relationship (R107-8). 56 At R109 he addressed CCG's argument based upon the sole agreement clause (13.3) in the draft D+C Contracts. This remains an aspect of CCG's argument and I shall return to it. 57 At R111-124 the Referee stated why he determined that Litevale was the party to the Interim D+C Contract, albeit as agent for CPL. This matter is not now in dispute (see Tr pp13-14). 58 Having laid the groundwork by this careful review of the factual matrix, the Referee gave his reasons as to the applicable terms of the Interim D+C Contract in the following terms (R125-134):

[111]

Determination For the reasons set out above, I determine the Plaintiff is estopped by its conduct in using and relying upon its terms from denying that the third version of the Design and Construction Contract (exhibit P1, document 13) applies and from asserting instead that another form of contract applies. 61 In issues 1-4 the plaintiff challenges these conclusions in relation to the Interim D+C Contract, including the conclusion that the parties were, at the relevant time in 1995, legally adhered to the presently relevant terms of D+C 3 either by application of contractual principles or the principles of estoppel. 62 The four issues are related and it is appropriate to address them together. I have not overlooked the fact that Issue 1 addresses the Interim D+C Contract and that issues 2-4 address the later agreement that effectively incorporated the key terms of D+C 3 from mid March 1995 onwards. As CCG's Counsel acknowledged in argument (Tr 27/02/02 p142), the matters presently in dispute concern events occurring after March 1995, with the consequence that examination of the detailed contractual regime between December 1994 and March 1995 is largely academic. 63 The plaintiff challenges the findings on the content of the essential terms of the Interim D+C agreement and the content of the subsequent agreement between the parties (PS 1 s42ff). 64 It is contended that the Referee erred in law and in principle in his construction of the Development Agreement; that there was no evidence of agreement between Litevale and CCG in terms of price and scope of works; and that the Referee patently misapprehended the evidence in relation to the Development Agreement. 65 The plaintiff cites the well known passage in the judgment of McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR [97326] where he said (with the agreement of Hope and Mahoney JJA) at pp11,117-8. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship ….. A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error "to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed" …. Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words. The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract. (emphasis added by plaintiff) 66 The plaintiff points out, correctly, that the Development Agreement itself contains no terms for the execution of the Works which the developer Litevale was entitled to enforce against the plaintiff CCG. The plaintiff submits that the fundamental flaw in the Referee's analysis of the Development Agreement was his failure to distinguish between: (1) terms binding on the Developer which the Proprietor (Vynotas) is entitled to enforce; (2) terms binding on WALTER which the Proprietor (Vynotas) is entitled to enforce; and (3) terms binding on WALTER which the Developer is entitled to enforce. 67 In my view the Referee did not commit this fallacy. Nor do the matters now relied upon by the plaintiff displace the force of the other matters taken into account by the Referee, in support of his conclusions and reasons on contract and estoppel, which I adopt. 68 It is true that the Development Agreement does not directly address the bilaterial relationship between Litevale and CCG, and that it expressly contemplated that this would be done in the "Construction Contract" (ie the D+C Contract) that was already in preparation. 69 It is also true that there are some areas of slight misalignment between the obligations assumed by the Builder to the Developer under the Development Agreement and those spelt out in the formal D+C Contract. These include aspects of the provisions relating to practical completion and the precise identification of the work to be done for the main contract price. It is however inherent in the fourth category of Masters v Cameron contract that it represents something less than the perfection of the parties' contractual relationship. In any event, experience teaches that contractual perfection is never achieved in complex multilateral contractual arrangements such as the one now in contemplation. A fortiori where the relevant obligation (design and construct) contemplates that new issues will constantly present themselves. The defendants also point to plausible reasons, accepted by the Referee, touching the particular matters relied upon by CCG (see DS2 ss48ff). 70 It bears repeating that CCG expressly adopts the Referee's finding that on 23 December 1994 "the parties intended to be immediately bound by essential terms for the design and construction of the Project whilst also expecting to make a further contract containing additional terms (R135: see PS1 ss14 and 42). 71 The defendants are correct in their submission that the Report does not turn upon a finding that the contract was fully formed as at 23 December 1994. In the final analysis it was sufficient for the Referee to look at the position as it stood from March 1995 onwards, because that was the period within which the facts giving rise to the present disputes occurred. The Development Agreement was part of the factual matrix, but so too were the representations surrounding its execution (R28, 102), the preparation of D+C 3 in all its agreed detail, and the dealings of the parties as they embarked upon what was undoubtedly the construction phase of the project. From 28 March 1995 onwards the minutes of the Project Control Group Meetings consistently recorded the status of the D+C Contract as "Contract agreed in principle". 72 Issues 2, 3 and 4 embody the plaintiff's challenges to the Referee's findings that critical terms and conditions of D+C 3 had become part of the contractual arrangement between the parties from mid March 1995 onwards. 73 The plaintiff's submissions concerning issues 2, 3 and 4 are at PS 1 ss56-91. These submissions were elaborated orally by reference to some of the contract administration documents (tab 8). 74 These issues were formulated in the following terms in the plaintiff's written submissions: Issue 2 : WALTER challenges the finding of the Referee that the parties evinced an intention to be bound by the terms of the third version of the Design and Construction Contract, by their conduct in administering the Project on the basis of that document and by relying upon its terms and conditions regarding their respective rights and obligations: see pages 131 & 142-147 of the Report. The grounds for challenge are as follows: (1) Error of law in taking account of subsequent conduct. (2) No evidence that the parties were ever ad idem on being bound by the terms of the third version of the Design and Construction Contract, more particularly in respect of clauses 2.5(1), 2.8, 4.5(1) and 13.3. (3) Patent misapprehension of the evidence. Issue 3 : WALTER challenges the finding of the Referee that the terms of the third version of the Design and Construction Contract have application to govern the relationship between WALTER and the Developer: see paragraph 3 on page 135 & pages 142-147 of the Report. The grounds for challenge are as follows: (1) Error of law and error of principle in construction of the third version of the Design and Construction Contract, particularly in relation to the significance of the Sole Agreement clause in clause 13.3 (cf. p. 110 of the Report). (2) No evidence that the parties were ever ad idem on being bound by the terms of the third version of the Design and Construction Contract, more particularly in respect of clauses 2.5(1), 2.8, 4.5(1) and 13.3. (3) Patent misapprehension of the evidence. Issue 4 : WALTER also challenges the finding of the Referee that it is estopped by its conduct in using and relying upon its terms from denying that the third version of the Design and Construction Contract applies and from asserting instead that another form of contract applies: see pages 134 & 136-141 of the Report. The grounds for challenge are as follows: (1) No evidence that WALTER ever represented that it agreed to be bound by the terms which had not been agreed in respect of clauses 2.5(1), 2.8, 4.5(1) and 13.3 of the third version of the Design and Construction Contract. (2) Patent misapprehension of the evidence. (3) Error of law in applying the requisite legal standard, in that there was no relevant detriment or unconscionability on the case pleaded in paragraph 22 f at pages 16 - 18 of the Defence, namely that RCP (the Developer's Project Manager) was to administer progress and variation claims and arrange to pay on RCP certificates.

[112]

75 The plaintiff cited Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163 [24]-[27] and C H Magill v National Australia Bank Ltd [2001] NSWCA 221 at [50]-[51] in support of the legal propositions that post-contractual conduct was admissible on the question of whether a contract was formed, but not on the question of what it meant. Brambles also supports the proposition that a search for objective evidence of contractual formation must not confine itself to the classical theory of contract formation as found in the first edition of Anson on Contract. 76 The plaintiff argued that there was no evidence that the parties were ever ad idem on being bound by the terms of D+C 3, more particularly in respect of cls 2.5(1), 2.8, 4.5(1) and 13.3. 77 Particular reliance was placed on Mr Coburn's evidence concerning the objections and proposed amendments he raised relating to cls 2.5(1) and 4.5 in his letter of 9 January 1995 (see R 89-90). I was taken to passages in Mr Coburn's evidence (tab 6) which sets out the detail. 78 This argument reagitated one that was addressed and disposed of adequately in the Report in the passage from R125ff that is set out above, with which I am in agreement. I would add this. Paragraphs 33 and 34 of Mr Coburn's statement (tab 6 pp 410-11) show that his concern about the drafting of cl 2.5(1) touched on a fairly minor matter (the inclusion of the words "unexpectedly publicly") and that it did so in the context of an assertion by CCG in January 1995 that CCG had no responsibility with respect to "compartmentalisation". This was the first time that the drafting of cl 2.5(1) was raised as a specific problem. Litevale's Mr Kerr responded to Mr Coburn's overture about three or four weeks after 12 March 1995 indicating that Litevale would not accept CCG's position in relation to compartmentalisation. Mr Coburn took the matter no further, doubtless because CCG believed it could quickly and cheaply obtain dispensation from the Building Code of Australia compartmentalisation requirement (R132). Cf Brambles at 194-5. 79 The minutes of the site meetings and the subsequent conduct of the parties which were at times expressly referable to the D+C Contract amply justified the Referee's conclusion that the parties had relevantly adhered to D+C 3, whether through the principles of contract as expounded in cases such as Integrated and Bathurst or the principles of estoppel by convention or representation. 80 It should be added that Mr Coburn's evidence about disputing the inclusion of the words "unexpectedly publicly", even if taken at its highest, would not necessarily write some version of cl 2.5(1) out of the contractual matrix. Here it is relevant to remind oneself that the plaintiff for its own reasons contends that some contractual relationship existed at the relevant time. Indeed, towards the end of his submissions counsel for the plaintiff confirmed that he was not contending that no version of clauses 2.5 and 2.8 was incorporated (Tr 27/02/02 pp140-1). 81 Next, the plaintiff seeks to build a case upon sole agreement provision in cl 13.3 of the drafts of the D+C Contract. In the main the plaintiff's submissions repeat those advanced to the Referee and are found within his response, with which I concur. The Referee said this (R109-110):

[116]

I note that in Stuart v Dundon (1963) SASR 134, Travers J held that a document was not to be regarded as the complete record of the parties' agreement despite such a merger clause because it was utterly incompatible with an oral agreement and because it had been prepared in a slipshod fashion. On appeal to the full Supreme Court of South Australia this decision was reversed because, when all objective indicia of intent were considered, including the signature on the document containing the merger clause, there was insufficient evidence to justify the finding of fact that the parties intended the seller be bound by an oral warranty. CCH's Australian Contract Law Reporter makes the following comments about this decision and this issue (at ¶21-185): "... Their Honours appeared to accept Travers J's general approach to the effect of merger clauses and their liability to be overriden in appropriate cases by sufficiently strong evidence that a further term was intended. Further judicial support for this view can be found in the comment of King CJ in Leyland Motor Corp of Australia Ltd v Wauer (1983) 104 LSJS 460 at pp 463-464: 'It would be absurd to suppose that the parties should orally agree upon certain terms of the contract and at the same time agree in writing that those terms are not to form part of the contract. The finding that the parties agreed that the oral terms should form part of the contract must render the written words on the standard form, excluding oral terms, ineffective.' Thus while no one doubts that a merger clause in a signed formal document is evidence which tells strongly against there being further terms, it does not appear to be conclusive. The position appears to be as stated by Lucke at 40 ALJ 272: 'The scrutiny, the interpretation, the application, or, in appropriate cases, the rejection of merger clauses is part and parcel of the process of establishing whether the document constitutes a contract in writing. At no stage in this process must the applicability of the rules of construction and of the parol evidence rule be assumed, since these rules apply only when it has been shown that the document is a written contract. The contention that merger clauses are rendered conclusive by the rules of construction and by the parol evidence rule is clearly based on a petitio principii, on a confusion between the effects of these rules and their applicability.'"

[119]

82 At other times the plaintiff seemed to argue that, since cl 13.3 was part of the document always before the parties (in each version of the D+C Contract), the absence of execution meant that the whole of D+C 3 was to be excluded. Like several of the plaintiff's arguments, this proposition encountered the general difficulty presented by the plaintiff's insistence that some detailed contractual regime regulated the building phase. The argument ran into problems at a more specific level whenever the plaintiff argued in favour of clauses that varied in minor detail from their form appearing in D+C 3. 83 Next, the plaintiff points to aspects of the conduct of the parties in 1995 that are said to support the conclusion that the parties were not conducting themselves on the basis that D+C 3 was applicable to their dealings, at least to the extent that it was consistent with their expressly agreed position under the Interim D+C Contract (PS1 ss69-72). 84 Once again the plaintiff attempted to walk a very fine line between its adherence to the proposition that there was some contract governing the relationship of the parties throughout 1995 as they proceeded to "performance" of a $25 million building project, on the one hand; and its contention that the commonly agreed terms of the (unexecuted) D+C 3 were not the principal point of contractual reference. 85 The documents in tab 8 to which I was taken in oral address do not show that the parties conducted themselves as if D+C 3 did not have any bearing on their relationship. At most they showed a high level of casualness about compliance with cl 2.8's procedural regime (something which the Referee held to have been the plaintiff's undoing as regards several of its variation claims) and/or mutual forbearance by the parties in 1995 to press contentious variation issues to a final conclusion. The plaintiff says that this shows that the parties acted on the basis that they did not regard cl 2.8 as part of the contract, but other inferences are available. One is that this was a procedural omission on the plaintiff's part, to its detriment. Another is that the parties initially chose to address incipient disputes about variations by alternative procedures, without first adverting to the procedures contemplated by cl 2.8 (expert determination), while keeping the latter in reserve. Furthermore, it is perfectly understandable that parties may agree to defer exploration or enforcement of disputed legal rights, a fortiori in a context where everyone knew that a formal D+C Contract had not been executed and that it was (for a time at least) a matter of disagreement at least in points of detail. And there is nothing surprising about a letter rejecting a variation claim on grounds of substance without additional reference to procedural difficulties. It is also relevant to observe that there was much conduct consistent with D+C 3 being the primary contractual focus. The Referee was perfectly entitled to give this substantial weight, especially in a context where (to be repetitive) the parties were ad idem that some contractual regime existed at all relevant times. 86 I would therefore adopt the Report in so far as it concludes that by virtue of the principles of contract and/or estoppel D+C 3 became the primary if not sole source of the parties contractual relationship at all material times, ie after March 1995. The plaintiff's attempt to exclude or re-write clauses which are vital to the disputes concerning "Variations" which arose later must be rejected. This means that the procedural regime embodied in those clauses was part of the contractual matrix. It also means that resort to restitutionary principles based upon gaps or inadequacies in the contractual position is both unnecessary and improper (cf Update Constructions and Brenner, referred to in par 37 above).

[124]

99 The plaintiff submits that there is no proper basis for reading down the word "Authorities" in the manner determined by the Referee. The Land and Environment Court had "jurisdiction or control" over the Works and the Site, which it could exercise by issuing an injunction. If the reasoning applied by the Referee were correct, then a stop-work order issued by the Council would constitute a variation whereas an injunction issued by the Court would not. This, the plaintiff contends, would be an absurd result. 100 I agree with the Referee and would reject the plaintiff's submission. 101 It is true that the Court exercised some jurisdiction (presumably that stemming inter alia from s23 of the Land and Environment Court Act 1979) when issuing the interlocutory injunction. Beyond this, the reason why the injunction was sought or obtained remains of a mystery. The Report discloses no more than that it was obtained by a group called the "Friends of Hay Street" and that it arose from "an issue in the control and responsibility of the Developer or the Proprietor" (R290). The plaintiff does not point to any material that might indicate that the injunction stemmed from a lawful demand emanating from public body in the executive branch of government. Rather, the claim has at all times been based on the submission that the Court was itself an "Authority" within the Contract. 102 The plaintiff's argument would have every act of curial intervention as a requirement of an Authority. This would pick up an injunction issued to enforce a contractual obligation or some other private civil obligation, something which strikes me as entirely outside the scope of cl 2.5(1). 103 The plaintiff has not pointed to any material indicating the basis upon which the Land and Environment Court had jurisdiction or control over the Works or the Site. In one sense that Court has jurisdiction capable of touching any part of the State. The reality is, however, that its jurisdiction is personal in the sense of being directed at defendants whose conduct contravenes any of a wide (but not infinite) range of environmental laws.

[127]

105 The plaintiff's claim is pleaded in pars 33-38 of the third further amended summons and in many paragraphs of Schedule B to that document as identified in the "Particulars" forming part of pars 33 and 35 of the pleading. In fact Schedule B stands in its own right as a fully fledged pleading containing 118 paragraphs. This is not a model form of pleading and it has contributed to the disputes before me as to the issues addressed in this portion of the reference. 106 The allegation was that the defendants had engaged in conduct, as particularised, some of which was said to involve the making of express representations (see eg Schedule B, par 42 which pleads the effect of a letter). A close reading of Schedule B reveals however that it was not asserted that the defendants had ever expressed in terms the Developer's intention or capacity to pay for variations (see also R324-5). Of course, the D+C contract embodied a complex and conditional contractual promise to pay, but the Trade Practices Act case necessarily involved something more. 107 The claim touching the items on which the plaintiff succeeded was pleaded as follows: 33 The defendants engaged in certain conduct which caused the plaintiff to believe, and to carry out work and incur cost in the belief, that it would be paid reasonable additional remuneration for carrying out the following works: …. (h) Other variation works. Particulars of Conduct (h) Other Variation Works See paragraphs 5, 6(c), 8, 9, 10, 11, 16, 19(a) & (b), 29(c) & (d), 30, 31(d) & (e), 34, 45, 46, 47, 48, 105, 106, 107, 111, 112 and 116 of Schedule B 34 The defendants by that conduct represented: (a) That the defendants agreed to pay reasonable additional remuneration for the work. (b) That the plaintiff would be paid reasonable additional remuneration for the work (this being a representation with respect to a future matter). (c) That the defendants believed and intended that the plaintiff would be paid reasonable additional remuneration for the work. (d) That there were reasonable grounds for the representation in paragraphs 34(a) & (b) and the belief and intention in paragraph 34(c). 35 That conduct was, or became misleading or deceptive or likely to mislead or deceive, in that the defendants did not agree, nor believe and intend on reasonable grounds, that the plaintiff would be paid reasonable additional remuneration for the work; alternatively, they ceased so to agree, or to believe and intend on reasonable grounds, without informing the plaintiff of the change of position. Particulars See paragraphs 50, 54, 64, 73, 82, 90, 97, 103, 110 & 115 of Schedule B 36 The first and second defendants thereby contravened Section 52 of the Trade Practices Act (Cth) and Section 42 of the Fair Trading Act (NSW). 37 The third defendant thereby contravened Section 42 of the Fair Trading Act and was a person involved in the first and second defendants' contraventions of section 52 of the Trade Practices Act within the meaning of Section 75B and Section 82 of that Act. 38 The plaintiff suffered loss or damage by the defendants' contravening conduct, being the costs incurred by reason of carrying out the work and for which it has not been paid, as set out in Schedule A. 108 It is unnecessary to set out the paragraphs of Schedule B referred to by way of particulars. However, I observe that the plaintiff referred to discussions in 1994 concerning anticipated net rental income; and estimations as to the Developer's profit based upon an agreed yield of 10.5% of the purchase price then under discussion or anticipation. Reliance was also placed upon discussions and documents passing between the parties from March 1995 onwards in which the Developer disclosed its then allowances for some variation items in a context where the plaintiff was being urged to give the earliest advice on all possible variations (ss29(c) & (d), 31(d) & (e)). These and other discussions were said to involve conduct by the Developer that: … represented to Walter that, unless a variation claim was promptly rejected by RCP, the variation would be paid in an amount to be determined by agreement between the parties or by expert determination if the parties were not agreed on the amount to be paid (s45).

[188]

Determination For the reasons set out above, I determine: 1. the Design and Construction Contract contained a contractual representation by the Developer with respect to the future matter that the Developer would pay the Plaintiff for Variations; 2. as I have found Litevale entered into the D+C contract with CCG as agent for CPL, that representation was made by Litevale and CPL; 3. CCG entered into the D+C contract in reliance (amongst other things) upon the contractual representations in the D+C contract about Variations; 4. Litevale was the undisclosed trustee of the Retail Unit Trust; 5. the Development Agreement provided for the Proprietor to retain the amount of $2.5 million from payments to the Developer to secure the Developer's obligations under the Rent Performance Deed, which had the potential effectively to wipe out the profit the Developer might otherwise have earnt from the development and which might otherwise have been available to pay for Variations; [336] 6. as a consequence of the leasing performance of the Project, the rental guarantee was consumed and, except with respect to the amount of $39,252, the Developer has not paid the Plaintiff for the Variations I have determined above. CCG has thereby suffered loss and damage; 7. as the Defendants have not adduced evidence to satisfy the onus placed upon them by section 51A(2) of the Trade Practices Act to show that Litevale or CPL had the financial capacity (in the circumstances of the rental guarantee) and, thus, reasonable grounds at the time of entering into the D+C contract for making the contractual representation with respect to the future matter that the Plaintiff would be paid for Variations, Litevale and CPL's conduct in making that representation was in contravention of section 52 of the Trade Practices Act; 8. the Third Defendant, O'Rorke, was a person involved in that contravention pursuant to section 75B of the Trade Practices Act; 9. pursuant to section 82 of the Trade Practices Act, the Plaintiff is entitled to damages against the First, Second and Third Defendant, which I assess (taking into account payments made to the Plaintiff) at $580,440.15; 10. the Plaintiff has failed to make out its contentions that the Defendants misled the Plaintiff during the construction of the Project by silence in not informing it the Developer did not intend to pay for additional work or acceleration; 11. there is no basis to find: (a) the Defendants were aware, or should have been aware, prior to Practical Completion that the leasing performance of the Centre would be poor and that, in consequence, the profitability of the Project would be adversely affected by the rental guarantee; and (b) that, consequently, the Defendants misled the Plaintiff by silence in failing to inform the Plaintiff that the Developer would not be able to pay for Variations.

[213]

(vii) Those items became contractually due in accordance with the provisions of the D+C contract because of its terms relating to Variations found in cl 2.5(1) and 2.8. 128 The computation of the "Approved Variations" is discussed at R148-151. This encompasses V2 (increased extent of Level 1 tenancy), V11 (alterations to the food court tenancy layout), V44 (CCTV installation), V25 (Target division wall) and approved tenancy fit out variations. V2 relates to a quotation accepted by RCP on 5 June 1995. The other items concern variations approved later, some of them as late as November 1995. 129 The landscaping approved variation (V27) is discussed and calculated at R239-256. This claim had originally been for $194,170. The bulk of the claim was disallowed by the Referee, with only $23,254.94 being awarded. The work was done pursuant to drawings prepared in or after September 1995 (R239). 130 The Northpower approved variation ($31,931.55) is a small part of a much larger claim ($404,609) which the Referee addresses at R275-288. It is based upon an unexpectedly publicly notified requirement of an Authority falling within cl 2.5(1). The requirement was made on 6 March 1995 (R286). 131 The Telecom approved variation (V6) arose in relation to a Telecom requirement for relocation of Telecom communication mains notified by Telecom in February/March 1995 (R306). 132 Some of these claims involved matters falling within cl 2.8 which, subject to detailed procedures, obliges the Developer to pay for requested variations. The consensual dealings between the parties giving rise to the obligations in question occurred in the second half of 1995. 133 The balance represented claims arising under cl 2.5(1), which deems to be a Variation the Builder's cost of complying: with … the requirements of all Authorities provided that if any requirement is unexpectedly publicly notified after the Relevant Date … then compliance by the Builder with any such requirement shall constitute a Variation .

[215]

(viii) The "Developer's" inability to pay these contractual obligations stemmed from its having access to no funds except those generated by the Project and from the profit shortfall that emerged as a result of difficulties in getting tenants after the Centre opened. 135 I find it most curious that the reference was decided on the basis that the only funds available to meet any shortfall in the Developer's project costs would be the Developer's profit on the Project (see R329). It is true that the "Developer" would have looked to this source of funds for discharging its contractual liabilities - at least from an accounting point of view. But its capacity to pay involved much more because the corporate Developer was in no way so confined, a fortiori in defence of a claim that it lacked the capacity to meet the variation claims from the outset of the contract. 136 The parties are now in significant dispute as to whether it was common ground before the Referee that Litevale's profit from the project was the only source of funds to which "the Developer" might have recourse in meeting the contractual obligations (see DS 4 s22ff and PS 5 s9ff). Yet each seems to want to adopt a position inimical to its own long term interests. Thus, the defendants seem to accept that the Referee was correct in approaching the matter on the restricted basis, whereas the plaintiff argues that "the Developer's" assets were not thus confined. I content myself with observing that, if the plaintiff is correct, its s51A case become immeasurably harder to support. 137 I reiterate that the plaintiff never asserted express representations as to intention or capacity to pay. Nor was anything pleaded or found as to the structure and financial wherewithal of the Developer. It was of course known to be a corporation with limited liability, but nothing seems to have been explored as to the state of its balance sheet at the time when the variations occurred, ie late 1995. Any rights to go against the corporate assets (if any) at that time, or to exercise rights of recourse against (a) the Proprietor under the Development Agreement, (b) the directors under the Corporations Law or (c) the beneficiaries of the Retail Unit Trust of which Litevale was the trustee (cf Balkin v Peck (1998) 43 NSWLR 706) seem to have been entirely ignored. The plaintiff embraced the position that it knew nothing about Litevale's role as bare trustee of the Retail Unit Trust. 138 Be these matters as they may, if the case has to date been fought on the restricted basis it would be inequitable to permit a radical departure at this stage. I shall proceed on this assumption, because the Referee certainly did. 139 What then are the relevant findings on this theory of examining the "Developer's" inability to pay for the variations and whether there were reasonable grounds for representing ability to pay as at the contract's inception? The Referee's conclusions are found in ss5-7 of the "Determination" at R335-6: 5. the Development Agreement provided for the Proprietor to retain the amount of $2.5 million from payments to the Developer to secure the Developer's obligations under the Rent Performance Deed, which had the potential effectively to wipe out the profit the Developer might otherwise have earnt from the development and which might otherwise have been available to pay for Variations; 6. as a consequence of the leasing performance of the Project, the rental guarantee was consumed and, except with respect to the amount of $39,252, the Developer has not paid the Plaintiff for the Variations I have determined above. CCG has thereby suffered loss and damage; 7. as the Defendants have not adduced evidence to satisfy the onus placed upon them by section 51A(2) of the Trade Practices Act to show that Litevale or CPL had the financial capacity (in the circumstances of the rental guarantee) and, thus, reasonable grounds at the time of entering into the D+C contract for making the contractual representation with respect to the future matter that the Plaintiff would be paid for Variations, Litevale and CPL's conduct in making that representation was in contravention of section 52 of the Trade Practices Act; These conclusions in turn are based upon the following passage (R329-330): It is noteworthy that Litevale was the undisclosed trustee of the Retail Unit Trust. It is also noteworthy that Litevale and CPL entered in a Development Agreement which entitled Norwich to retain the sum of $2.5m as a rental guarantee which could be set off to meet any moneys owing by the Developer to the Proprietor under the Rent Performance Deed. And, if so applied, that $2.5m would effectively wipe out any profit the Developer might otherwise make and which might otherwise have been available to meet the Developer's payment obligations for Variations. In such circumstances, the Developer would have required additional funding to that required for the design and construction of the project and to generate its estimated profit in order to pay for Variations.

[222]

(xi) Semble , the "Developer" means both Litevale and CPL. 142 As regards contractual liability, the Referee deals at length with the question of parties at R111-124. The legal analysis is, with respect to him, quite confusing. It moves back and forth between issues of authority to contract, undisclosed agency, ratification and agency by estoppel. The ultimate finding "that Litevale entered into the D+C contract as agent for Consolidated Properties Ltd" is inherently ambiguous and does not in itself justify treating CPL as a party to the contract, because the general rule is that where a person contracts as agent for a principal the contract is the contract of the principal, not the agent (Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 at 371). There are exceptions to this general rule. One is that even a disclosed agent may incur personal liability if the terms of the contract, its nature or the surrounding circumstances make this plain (see Australian Tallow & Agri-Commodities Pty Ltd v Malaysia International Shipping Corporation (2001) 50 NSWLR 576 at 582-3). 143 The Development Agreement distinguished between Litevale (the "Developer") and Consolidated Properties Ltd (CPL) (the "Guarantor"). The drafts of the D+C Contract were also explicit as to Litevale being the Developer. However, the plaintiff contended that Litevale entered into D+C 3 as agent for CPL which was a "brand name" used by the various companies wholly or jointly controlled by Mr O'Rorke. 144 From time to time "Consolidated Properties" was referred to in correspondence and minutes of various meetings (R113-115). There was also evidence from Messrs King and O'Rorke (accepted by the Referee: R121) to the effect that Litevale was set up as a project specific company for the development of shopping centre projects (R115). This was the material that led the Referee to conclude in effect that both Litevale and CPL were liable as contracting parties. 145 When he turned to the implied "contractual representation" in the context of the Trade Practices Act claims, the Referee appears to have concluded that the "Developer" making those representations encompassed both corporate defendants on the same basis. Thus, he said (at R328): Since I consider Litevale was acting as CPL's agent in entering into [the Design And Construction Contract], those representations were by the First and Second Defendants.

[231]

Proposition B: These promises also constituted "contractual representations" about capacity to pay that were relied upon and that generated the claim of misleading and deceptive conduct. 152 Practically nothing is revealed to explain the progression from the self-evidently correct Proposition A and the highly problematic Proposition B. It is not the law that every contractual promise has a superimposed representation as to ability to perform, either as at the time of contract or some future date. 153 It remains very difficult to perceive the basis upon which the Referee made the critical findings of breach of the statutory norm and reliance. The Report is certainly devoid of reasons beyond the references to a variations power being "an important element of a D+C contract" and that a provision that changed Authority requirements will constitute a variation is "an important protection for a D+C contractor" (R329). 154 The circumstances in which contractual promises can be the basis for misleading and deceptive conduct by the combined operation of ss52 and 51A of the Trade Practices Act has been explored in a small number of cases (see generally Halsbury's Laws of Australia, "Consumer Protection" at [100-125]). 155 Failure to keep a promise is not itself misleading or deceptive conduct. For one thing, the question whether s52 has been contravened must be considered as at the time the conduct is engaged in, and not by reference to subsequent events. In Bill Acceptance Corporation Ltd v GWA Limited (1983) 78 FLR 171 Lockhart J said (at 178-9): So far as I am able to characterise the allegations in the statement of claim as representations or statements as to future conduct of the respondent they involve no element of absence of belief by the respondent in the truth of the statements and no element of reckless indifference to their accuracy. They are simply promises by the respondent that it will pay a certain sum of money on a particular event. That event occurred, but the money was not paid. … Whether statements or representations of this type are misleading or deceptive must be determined at the time they were made, although this may be determined by reference to later events. For example, what a person does tomorrow may have a real bearing on whether he held a particular belief today. The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive notwithstanding that the applicant has relied on them and has altered his position on the faith of them. In this case, the lone fact that the agreed procuration fee was not paid did not transmute the conduct of the respondent from conduct that was not, to conduct that was, misleading or deceptive. That conduct, namely the relevant representations or statements retained the same character throughout. The only variable was that the agreed fee was not paid. That was the cause of the applicant's loss or damage, if any. If the respondent had made representations or statements with knowledge of their falsity or with reckless indifference to their accuracy the applicant's case may then fall within what I believe to be the present law on this subject as expressed by Fitzgerald J in Stack's case to which I have already referred. However the applicant has not pleaded any intent on the part of the respondent to mislead or deceive, nor has it pleaded any reckless indifference as to the accuracy of the statements made.

[232]

156 Section 51A was enacted after Bill Acceptance. It shifts the burden to the representor to establish a reasonable basis for having made a representation with respect to any "future matter". But this does not alter the basal principle stated by Lockhart J. In a case (such as the present) where there is no continuing dispute about the genuineness of the promise when made (ie intention to perform), the issues become that of determining (i) whether at the time the contract was entered into there was a superimposed representation as to capacity to perform the contract according to its terms, in due course, as regards variations falling with clauses 2.5(1) and 2.8; (ii) whether that representation was relied upon; and (iii) whether, at the time the putative representation as to capacity to perform was made, it was reasonable for the Developer to have made such a representation. 157 The impact of s51A in relation to contractual promises is discussed in Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679, Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 and Serrata Invest Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419. The discussion in those cases did not have to reach conclusions upon presently critical issues. Nevertheless, it is most informative. 158 In Wright, the majority (Mahoney JA and Clarke JA) held that an employer did not engage in misleading or deceptive conduct merely because a work accident involved breach of the term implied at law that the employer would take reasonable care to provide a safe system of work for the employee. Their Honours regarded the distinction between a warranty arising expressly or by implication on the one hand and a warranty arising by imputation of law on the other as significant in this context (see at 684G per Mahoney JA and 698C-E per Clarke JA). Nevertheless, they recognised in obiter dicta that there will be circumstances where an express or implied warranty may also involve conduct capable of generating rights under the Trade Practices Act. For example Mahoney JA said (at 684): Where the warranty arises because, expressly or by implication, the employer intended it to be given, the circumstances may warrant the worker taking from the making of the contract of employment that the employer will do what he warrants. The warranty, in the circumstances, may give the worker to understand that that will be so. In such a case, the conclusion will be open that, from the conduct of the employer in doing what he did, the worker was to take it that the employer would act in a particular way. And, if the employer had, for example, no intention or no provision for doing so, then the conclusion may be open that that which the worker took from the contract of employment would mislead.

[233]

See also per Clarke JA at 698, per McHugh JA at 690. 159 In Futuretronics, Ormiston J was considering a claim of misleading and deceptive conduct within the meaning of the Fair Trading Act 1985 (Vic). A property was knocked down at auction to the defendant who refused to sign the contract or pay the deposit. The vendor's contractual action failed because the contract was unenforceable in the absence of a written memorandum sufficient to satisfy the Victorian equivalent of the Statute of Frauds. 160 Alternatively, the plaintiff alleged misleading and deceptive conduct based on the defendant's failure to make good his representation that his bid was genuine and that he intended to be bound by the auction conditions. The conditions of sale at the auction had stated that the successful bidder should pay the required deposit and sign the contract of sale immediately the property was knocked down to him. Ormiston J held that the defendant had impliedly represented that he would sign the contract when he made what turned out to be the successful bid. The defendant failed to adduce evidence that he had reasonable grounds for making that implied representation within the context of the Victorian counterpart to s51A of the Trade Practices Act. However, the plaintiff failed to recover damages because, in the particular circumstances, no demonstrable loss flowed from any reliance by plaintiff on the defendant's (deemed) misleading conduct. 161 The judgment of Ormiston J contains (at 233-241) an extensive discussion of the circumstances in which breaches of contractual promises may be treated as constituting misleading and deceptive conduct. His Honour quotes passages from Wright, concluding (at 237) that : No final view emerges for present purposes from Wright v TNT Management Pty Ltd , as the majority denied liability in respect of an alleged representation arising out of merely an imputed obligation. No member of the Court, took a narrow view of the applicability of the Trade Practices Act to contractual promises.

[234]

162 After referring to other cases and writings, Ormiston J said (at 238-9): If a promissory statement is to be the subject of complaint, it is also necessary to ask how did it amount to misleading or deceptive conduct. It is wrong to view every contractual obligation as an unqualified promise to perform the stipulated act. Indeed it is rare that a contractual promise is not in some way qualified by some reciprocal obligation to be performed by the promisee or by some other circumstance. If the promise induced the other party to enter into the agreement, as one can readily accept it would, then it is that promise and the circumstances then surrounding it which must be examined. The promise can only be said to be misleading or deceptive if it was in some way inaccurate; otherwise every unfulfilled mutual contractual promise will constitute misleading or deceptive conduct, a consequence which I cannot believe those who drafted the Act intended. If intention be relevant, the promise may be misleading if the promisor had no intention to fulfil it at the time it was made and accepted. If intention be irrelevant, then the promise may be misleading if the promisor had no ability to perform it at that time. If one were to go to the breach to determine whether there has been misleading or deceptive conduct, the breach may, but only may , provide some evidence from which one could infer that the promisor never intended or never had the ability to fulfil his obligation. Otherwise, if one combines promise and breach, the question must arise: in what way has the plaintiff been deceived or led into error? If it be said that he was misled into entering into the contract, then the breach is irrelevant, for that breach could have played no part in misleading him. If one moves to the later stage, it is possible that the two events might induce the other party to take some further step, but the promisor's combined actions could not be characterised as misleading or deceptive at the time the promisee was induced to accept the promise because the breach had not occurred at that stage. In my opinion the mere acceptance of the promise by a promisee cannot ordinarily be characterised as being led into error. In the usual case the consequence would be that the promisee had enforceable rights. It is hard to believe that normally any promisee with ordinary contractual rights would then describe himself as having been deceived or misled. It is only when it become apparent that the promise cannot be enforced, because, for example, it is either unenforceable or the promisee's rights are valueless or diminished, that one may return to the original promise to inquire whether that promise was of so little substance that it can be concluded that the promisee was indeed misled or deceived in the first place, at the time of his acceptance of the promise. Thus it may then be seen that the promisor originally had no intention to perform his promise or that he originally had no capacity or ability to perform it. Now, however, by reason of s10A (and s51A) the inquiry is apparently broader for one must also inquire whether at the relevant time the promisor had reasonable grounds for making any implicit representation (where relevant) that he intended in the future to perform his contractual promise, and for this purpose the onus of proof is reversed. Nevertheless the section does not say in what circumstances a representation as to a future matter shall be implied from a contractual promise.

[235]

163 Ormiston J then addressed the impact of s51A and its Victorian counterpart, s10A of the Fair Trading Act 1985 (Vic). He observed (at 239) that s51A does not say in what circumstances a representation as to a future matter shall be implied from a contractual promise. I respectfully agree. Later he said this (at 239, 240-1): It would seem on the authorities that, at the least, a contractual promise would amount to an implied representation that the promisor then had an intention to carry out that promise. If it can be shown that he had no such intention, he would be guilty of misleading or deceptive conduct. Likewise it would seem that such a representation connotes a present ability to fulfil that promise which, if shown to be untrue at the time of making, would likewise characterise the implied representation as misleading or deceptive. … In my opinion, therefore, accepting that s51A and s10A each assumes that a promise may give rise to an implied representation that the promisor will perform an act in the future, namely the promised act, then the promisee is not, in proceedings under s51 or s11, bound to show that the promisor had no intention or no ability to perform the promise at the time of its making. The promisor will be deemed not to have reasonable grounds for making the representation or promise, unless he satisfies the court by evidence to the contrary that he had reasonable grounds for making that representation. He may achieve this, in part, by showing that he had a genuine intention to perform his promise and that he had the ability at the time to perform it, but in the end he must show objectively that he had reasonable grounds for making the representation. For present purposes I am not prepared to accept that the plaintiff can make out its case by showing merely promise and breach. In my opinion, that evidence, on its own, is insufficient to show that the promisee was "led into error" unless the plaintiff can rely on s10A or s51A. If there is no element of actual or deemed misrepresentation then the promisee can have been led into no error, nor can it be said to have been misled, by reason of some subsequent breach which causes it harm or loss. If the facts connote no error or misrepresentation, nothing thereby led it to take a course which was erroneous. It follows from what has been said that I am not persuaded that one should treat every contractual promise as giving rise to an implied representation of the kind referred to in s10A (and s51A). However, I am persuaded that if there be an unconditional promise which forms part of the contractual obligations, then it is proper to treat the giving of that promise, at least in the ordinary case, as the making of a representation as to a future matter, being either the doing of an act or the "refusing" (sic) to do an act, being in each case the subject of the promise. Perhaps conditional promises may also be treated as the making of a representation as to future conduct, but in each case the qualified terms of the promise would usually lead to the conclusion that the maker had reasonable grounds therefore, unless it could be shown that under no circumstances would the promisor have fulfilled his promise. It is, however, not necessary to determine this latter point.

[236]

Futuretronics is referred to with approval by Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) FCR 470 at 506. 164 In Serrata Owen J in the Supreme Court of Western Australia considered and adopted Ormiston J's reasoning. He held (at 434) that a contractual promise does not, of itself, carry with it any representation as to the fact or conduct and that it is necessary to examine the contractual promise in the light of the circumstances surrounding the making of the offer and the circumstances as they have arisen, to see whether the conduct can be categorised as misleading or deceptive. 165 Section 51A provides a method for considering whether a representation with respect to any future matter shall be taken to be misleading. Absence of reasonable grounds for making the representation will deem the representation to be misleading (subsection (1)); and for that purpose, a corporation shall be deemed not to have reasonable grounds for making a representation unless it adduces evidence to the contrary (subsection (2)). 166 But this provision does not say in what circumstances a representation as to a future matter shall be implied for a contractual promise (Futuretronics at 239). A fortiori, it does not import into every contractual promise an implied representation as to intent and capacity to perform; nor does it prove that any such implied representation was relied upon by the other contracting party. 167 I readily accept that it will be comparatively easy to establish that a contracting party is implicitly representing a present intention to perform it according to its tenor. If the other party can establish causation and loss then damages should ensue, although there is usually little point in addressing such a claim because the law of contract will compensate the innocent party for the consequences of non-performance without even having to prove misleading intent from the inception. 168 But when one turns to an alleged implicit representation as to capacity to perform things are not so simple, nor should they be. There are policy reasons for restraint. The law arms the parties to a contract with rights to damages and other forms of relief if breach occurs or is threatened. A complex set of common law, equitable and statutory rights are superimposed on the terms of the bargain chosen by the parties. That bargain may have the simplicity as a contract to sell a loaf of bread or the complexity of a building agreement such as the one in question in this case. 169 Why should the parties be found or presumed to have intended more by what they expressly represented and understood? Of course, s52 goes beyond intentionally misleading or deceptive conduct, but it does not follow that the innocent party understood or relied upon anything more than the express representations and the usually adequate consequences stemming from breach of them stemming from the law touching the mutually chosen regime, ie contract. 170 As Ormiston J put it in Futuretronics (at 239): … the mere acceptance of the promise by a promisee cannot ordinarily be characterised as being led into error. In the usual case the consequence would be that the promisee had enforceable rights. It is hard to believe that normally any promisee with ordinary contractual rights would then describe himself as having been deceived or misled.

[238]

171 It would be erroneous to read the latter two sentences as stating that it will always be possible to return to the original promise after breach has occurred in a search for misleading or deceptive conduct ab initio in representing capacity to perform it. Section 51A does not provide otherwise, because it is only engaged after answering the prior questions concerning the nature of the implied representation and reliance. To apply s51A to an imputed "contractual representation" as to capacity to perform without first determining whether such representation was truly made and acted upon is to miss a vital step. This, in my view, is the essential error in the Referee's reasons. 172 In McWilliam's Wines Pty Ltd v LS Booth Wine Transport Pty Ltd (1992) 25 NSWLR 723 it was alleged that a transport company, by presenting its tanker to the plaintiff for the loading of wine, had breached s52 by falsely representing that the tanker was free of contaminants. Giles J held that in presenting the tanker for loading, the defendant, at most, represented that the wine would be carried in accordance with the terms of its contract with the plaintiff. The key passage in his reasoning was (at 730): Whatever the position may have been had Booth presented for loading tankers which it knew contained a contaminant, I do not think that there is to be found in its conduct in presenting the tankers for loading a representation that they were in fact free from an contaminant or, for that matter, fit for the carriage of the wine in other respects of the kinds mentioned earlier in these reasons. Booth presented the tanker to load wine for carriage on the terms of the consignment note. To the contrary of representing that it would take reasonable care of the wine, by those terms it significantly qualified its obligations. Assuming that it represented that it did not know of anything such as inadequate cleaning of the tankers which would cause loss of or damage to the wine, it did not represent that there was not such thing. The possibility of breach of contract on its part was there, and the responsibility for the potential loss or damage was what Booth sought to exclude. By presenting the tankers it did not represent that the drivers would always drive carefully, or that a valve would not spring a leak; it did not represent that there had been no carelessness in the servicing of the tanker or prime movers whereby they were not fully roadworthy; and it did not represent that there had not been carelessness in cleaning the tankers. McWilliams could not have been led to expect any such thing. What it represented was that the carriage of the wine, and the legal rights and obligations of it and McWilliams, would be regulated by the terms of the contract of carriage.

[239]

See also Colin Lockhart, The Law of Misleading and Deceptive Conduct Butterworths, 1998 at [4.20]-[4.21]. 173 I said earlier that there are policy reasons for restraint in inferring the making of or reliance upon a representation as to capacity to perform express contractual promises. Were it the law that every express contractual promise to pay money carried a present representation as to capacity to perform that thereby engaged s51A, an entire corpus of law relating to insolvency and insolvent corporate trading could be sidestepped by rendering the agents involved in contractual negotiation and performance personally liable through the combined operation of ss52, 51A and 82 of the Trade Practices Act. Corporations (and, more importantly, their officers) would, like the present defendants, be liable unless they proved that adequate provision was set aside at the outset to meet all liabilities capable of arising in the due performance of the contract. 174 As Ormiston J recognised in Futuretronics (at 241), it will be harder to discover implied representation and reliance (from the outset) where there is a conditional contract. The present case offers a good example of this insight. The very nature of post-contractual variations contemplate later dealings in which liability will stem from mutual assent later achieved. Why is it reasonable to infer from the complex promises alone that there was an immediate representation as to (financial) capacity to perform such obligations given that assent may be withheld or terms negotiated at the time the variation comes into play? 175 It is not quite so clear with "variations" that arise under cl 2.8, which depend on the requirements of "Authorities". Some provision for such contingencies might be prudent from the outset. But it remains true that one is dealing with requirements "unexpectedly publicly notified". 176 The reliance part of the equation comes into play as one asks: what might the parties reasonably have contemplated the "Developer" would do at the outset to ensure its capacity to pay in relation to these two categories of variations? The answer is by no means obvious, yet that very difficulty suggests further grounds for caution before drawing any inference of reliance upon the implied representation as distinct from rights under the contract. The plaintiff's difficulties increase when it is recognised that the party with whom it contracted, ie Litevale, was a corporation with limited liability and specifically formed for the purpose of the Project. It is very unlikely that the plaintiff would not have known this. It is certain that the plaintiff knew that it had not arranged guarantees or security for protection of its rights to payment under the contract. 177 In my view it was not open to the Referee to conclude in this case that the contractual promises were also "contractual representations" or that they had been relied upon as such by CCG at the time of contract formation. 178 These are my reasons for rejecting the Referee's conclusion that there was actionable misleading or deceptive conduct. Analogous reasoning explains why I cannot accept his findings on s51A either. 179 The basal question presented by s51A is proof of absence of reasonable grounds for making a representation. When asking about the existence of reasonable grounds for representing capacity to pay at the inception of an ongoing, developing contractual relationship such as a Design and Construct Contract of immense size and complexity one needs to consider issues such as the likelihood of circumstances giving rise to a need to pay for "variations", the timing as to when that need is likely to arise, and resources which the party in the plaintiff's position would reasonably consider to be available. The plaintiff knew it was dealing with a limited liability company and that the parties had endeavoured to work out feasibilities and likely profit margins. In such a context, it would be unreasonable to put the plaintiff automatically into the position of a protected secured creditor. There were elements of risk undertaken on its part also, as evidenced by its participation in the pre-contractual discussions about feasibility and profitability. 180 Although the Referee was entitled to reverse the onus of proof if satisfied that s51A was engaged (which I am not), he still had to grapple with these detailed issues. It was not enough, in my view, to point to the absence of evidence from the defendants as to them having the wherewithal to pay from the outset. 181 In any event, one can see how some of the reasoning adopted for establishing the plaintiff's s51A case was quite at variance with the approach to the "contractual representation" which was found to have been made at the outset of the D+C 3 contract. I shall endeavour to explain this by reference to the defendants' submission on this matter. 182 The defendants submit that there was ample evidence before the Referee to prove the reasonableness of the implied representation found to have been made. That evidence was that it was reasonable at the outset to represent that the corporate defendants would have the capacity to pay for variations made and accepted under the terms of the design and construct contract. That evidence, and other bases for challenging the Referee's determination on this issue, is referred to in ss24-5 of DS1. Some of that material relates to feasibility studies made in 1994, before any contract was entered into. Thus, the defendants point to the evidence (which the Referee apparently accepted) that Mr King and Mr O'Rorke believed on reasonable grounds at the time of contracting that Litevale would make a profit of about $3 million from leasing income (R329, 334). This anticipated profit would provide $500,000 over and above the $2.5 million to be held as the rental guarantee. The defendants next point to evidence (again accepted by the Referee) that this reasonable anticipation of such a profit was only dashed after the opening of the Centre in late 1995 when, due to then prevailing economic conditions, the shops did not lease as quickly as expected (R334-5). The Referee found that it was (R336): As a consequence of the leasing performance of the Project, [that] the rental guarantee was consumed and, except with respect to the amount of $39,252, the Developer has not paid the Plaintiff for the Variations I have determined above. CCG has thereby suffered loss and damage.

[240]

Furthermore he found that: … there is no basis to find: (a) the Defendants were aware, or should have been aware, prior to Practical Completion that the leasing performance of the Centre would be poor and that, in consequence, the profitability of the Project would be adversely affected by the rental guarantee. 183 In my view these findings on the s51A issue illustrate why this part of the Report contains an essential fallacy or slide of reasoning. It stems from the Referee's failure to examine both the impact of the representation on the plaintiff as at the time when it was made (ie the entry into D+C 3) and the reasonableness of the defendants' conduct in having made the disputative representation as at that date. 184 At R329ff in the passage commencing "It is noteworthy", the Referee indicates that he regarded the Developer's "profit" as the sole fund from which it could pay for variations, absent additional (semble, outside) funding. 185 Applying the reverse onus imported by s51A, the Referee (at R330) fixed the corporate defendants with breach because no evidence had been addressed that "the Developer" "had the capacity at the time of the Design And Construction Contract to pay for Variations which might arise pursuant to clause 2.5(1) as a consequence of the unexpected requirements of an Authority after the Relevant Date or under clause 2.8 as a consequence of a Variation request". 186 The "capacity" in question which therefore should have been examined on the reasonableness issue was a financial ability at the time of D+C 3 to pay for variations which might arise late under the Variations clauses. 187 There is in fact discussion about the Developer's later capacity to pay in the portion of the Report dealing with rejection of the plaintiff's claim based upon representations by silence (R332-5). It is set out in the extended passage quoted above. Neither side challenges this determination. In that context, the Referee accepted the plaintiff's submission that the Developer's impecuniosity was demonstrated by Exhibits P5, P6, P65 and P66 (R335, referring to plaintiff's submission at 7.9.2). Those Exhibits are or relate to financial statements of Litevale. They reveal that Litevale never earned income or traded in its own right, being the trustee of a Retail Unit Trust whose beneficiaries were Consolidated Management Resources Pty Ltd, Hacknell Pty Ltd and Casper Corporation (the latter two being trustees for family trusts). It is not clear to me why the financial statements reveal impecuniosity as at 30 June 1995 (their latest date) or as at any other relevant time. Be that as it may, the Referee concluded (at R335): However, on the evidence before me, there is no reason for me not to accept King and O'Rorke's evidence about the timing of their concerns about leasing the Centre and regarding the profitability of the project. In my opinion, that evidence was not effectively challenged by anything put to them in cross examination or by other evidence. Consequently, there is no basis for me to find that the Defendants engaged in misleading or deceptive conduct by silence by failure to inform CCG that the Developer no longer had the capacity to pay for Variations, due to the leasing performance of the Centre and the resultant profitability of the Project being adversely affected by the rental guarantee to Norwich. 188 This finding, and the evidence to which it refers (summarised at R334-5) establishes in the Developer's favour that there were reasonable expectations of a profit sufficient to cover Variations until some time after the opening of the Centre. The reasonableness is underpinned by the evidence that the plaintiff represented as much prior to contracting (see the Referee's findings and the evidence referred to in DS4). Problems only arose (qua profitability) when the level of leasing after practical completion caused a drop in projected rental income. 189 These findings cannot be reconciled with the conclusions of unreasonable conduct at the inception of the contract that were made in the context of the Trade Practices Act claims under present consideration. 190 Accordingly, I would not adopt the s51A conclusions either. 191 One of the defendants' additional complaints is that the Referee (at R330.2) found a misrepresentation different from that pleaded. The finding concerns a representation made when the design and construct contract was entered into, whereas the pleading averred representations "at the time payment would become due". I find it unnecessary to deal with this issue as to the outer limits of the case as pleaded or fought before the Referee. That is because the issue before me is whether or not the Referee's conclusions should be adopted. Those conclusions (addressing the situation as at the time of entry into D+C 3) cannot themselves stand, for the reasons already given. 192 It is unnecessary to consider the separate challenge to the finding of accessorial liability made against Mr O'Rorke. That claim falls away with the rejection of the findings against the corporations themselves.

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