2(a). With whom was the contract made?
42I have already set out the difficulties that the plaintiff has in demonstrating who was the proper plaintiff. The Local Court proceedings were commenced in the name of Demlakian Engineers Pty Ltd "in its on capacity and as trustee for the Demlakian Trust trading as Demlakian Consulting Engineers" which was legal nonsense. There was no suggestion that the plaintiff was both trading on its own account and as trustee under the business name. Accordingly one has to read it merely as being a claim by Demlakian Engineers Pty Ltd. It's letterhead claims that it is the entity that trades as Demlakian Consulting Engineers.
43However at some stage and it is not clear when a new company came into the picture called Demlakian Strata and Remedial Pty Ltd. Mr Demlakian was asked about this in the witness box and he said that this company took over the business. On further questioning he retreated from this and said that the new company was merely dealing with the administration of the old company. It is a little unclear what the true position is. However there is no doubt that there was a contract and the preponderance of evidence to my mind is that it is with the plaintiff.
2(b). What was the Contract?
44It follows from what I have already said that the contract was to prepare a defect litigation report. However, the complications arose principally because of the fact that the conditions of engagement were contained in a document obviously prepared for a situation where an engineer does actual work on a site as opposed to merely giving a report. Accordingly a lot of it does not make literal sense.
45Earlier in these reasons, I set out various definitions contained in the Conditions of Engagement. I need to repeat the definition of "the Client" viz:
"the Client" means the person for whom the Fee Proposal is prepared, and normally means the person receiving the benefit of the Services. A reference to person includes a company, corporation, firm or other body of persons
46The definition of "Client" is strange and is almost incomprehensible. It is hard to see exactly who the client is in this case if one applied the definition. The person for whom the fee proposal was prepared was actually the managing agent. However, I would think that to make commercial sense of the document, one would have to read the definition as if it said the person on whose behalf the fee proposal was prepared, notwithstanding that it might have been prepared and sent to an agent.
47However what "normally" means in the definition is completely obscure. In any event the person receiving the benefits of the services may not be a party to the contract for instance the case where a man builds a granny flat in his backyard for the housing of his parents. The definition gets close to being completely meaningless and so one has to assume that the client is the person who made the contract with the engineer.
48The definition of the Project is,
"the Project" means the design, development, construction, excavation or other works to which the Services relate pursuant to the Agreement;
49It is to be noted that the word Project is defined by using the word "means" rather than "includes". It then employs a concatenation of words, "design, development, construction, excavation or other works". Although Mr Di Francesco said other works could include the making of a report, I would reject this for two reasons. One the words that is employed "design" etc. must be read ejusdem generis to mean physical works and secondly clause 5.2.3 makes it clear that the works are works which come within the Building and Construction Industry Security of Payment Act, and I do not consider that reports come within that. Accordingly there is no project in the present case.
50Services are then defined as services in relation to the Project, so if there is no Project, the engineer is not providing Services.
51One then turns to clause 7.1. This claims copyright in all reports etc. "in connection with the Project" and this is to apply whether or not the project is carried out, as there was no project the clause cannot apply. Again the client's right to use the documents in 7.2 is that the client only has a license to use the documents "for the purpose of completing the Project" as there is no Project the clause literally stops the client from using the documents at all, and if that is the correct construction then there was never any benefit to the client, so there is no reason why the client should pay anything for them.
52Accordingly, if one reads that conditions of engagement literally one completely disposes of the copyright case and probably the claim for payment for the report as well. However is a justifiable approach?
53Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co, Sydney, 2012) paragraphs 2.05 and following, deal with the problem where the court is presented with a contract made with a commercial person which on its literal interpretation has many problems.
54A word of caution must be inserted here. Although the plaintiff is a commercial enterprise, the defendant is not. The defendant has no part in the construction industry nor the field of providing expert advice for litigation. Accordingly authorities and dicta as to how one approaches the construction of commercial contracts must be read sub modo.
55There are some indications in the various extracts from leading cases which are digested in that work that it is the obligation of the court, if at all possible, to make sense of these contracts. This is because it is rather implausible that parties, when making a contract with a purpose seriously in mind, would intend that their attempts should come to naught.
56The purpose of the contract if it can be ascertained must be a very important consideration when construing the words which the parties have used.
57Notwithstanding this as a general rule, the parties having used words must be taken to have meant something by them. If not Rule 2.07 in Lewison & Hughes on page 40 is "if the words of the contract are clear, the court must give effect to them even if they have no discernable commercial purpose". It quotes Kirby P in Hyde & Skin Trading Pty Ltd v The Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313 to 314:
It is the fundamental rule, that the court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid an instruction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such away.
58In Gloria Jean's Coffee v Western Export Services Inc. [2011] NSWCA 137 at [55] Macfarlan JA said (and Tobias AJA and I agreed with him):
If after considering the contract as a whole and the background circumstances known to both parities, a Court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, the Court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified to disregarding unambiguous language simply because the contract would have a more commercial than businesslike operation if an interpretation different to that dictated to the language adopted.
59Accordingly, it is difficult where a person proffering a fee agreement sets out terms of engagement which obviously cannot apply to the contract in question to say that a mistake has been made. Especially as here when the plaintiff keeps asserting that it is entitled to enforce the words used in the contract, particularly clause 7, according to their literal terms.
60There are situations where a court rejects words in order to make sure that the principal purpose of the contract is able to be carried out see e.g. Glynn v Margetson & Co. [1893] AC 351 at [357] per Lord Halsbury. The main purpose of the contract here was for the defendant to have an expert report which it could use to pursue the builder or its insurer.
61Did it get such a report?
62To answer this question, one must consider what sort of report was bespoken.
63I have already rejected the plaintiff's suggestion that initially the defendant asked for a defects report and later amended that to a detailed litigation report. The evidence points against this as I have already noted.
64The plaintiff's internal documents show that a defects litigation report was to be prepared without Scott Schedule. Mr Nash-Smith's correspondence shows that he was to group common defects.
65There was some debate in the evidence as to the point at which a draft Scott Schedule should be prepared. In the early days of the Scott Schedule, they were prepared after the case had been set down for trial. The reason was that most building cases settle at an early stage making the preparation of the Scott Schedule otiose and, in any event, the document cannot be prepare on a final basis until the defendant to the building case indicates what parts of the plaintiff's claim it denies.
66Some of the evidence in this case suggests that the present custom is to prepare the Scott Schedule at an early stage. This would seem to me just to increase costs. However, I do not need to pursue this matter. It is relevant as indicating that it is not necessarily unethical to produce a draft Scott Schedule at an early stage. However, in the instant case, there was no warrant to prepare it as the plaintiff's own internal documents clearly show.
67To return to the question, "Did the defendant get the report it sought?" if it were not for Clause 7 of the Conditions of engagement I would have thought the answer was clearly "yes". The defendant did get a document which, although over verbose and over detailed, was a defects report that could be used in litigation in the sense of being deployed to see what the answer was of the builder, and if necessary reformulated to be put in evidence.
68However, Clause 7 suggests that even though the client may have paid for the report (of course the plaintiff keeps saying that it did not on the instant case) the defendant could only use the documents itself and was not to hand them over to any other person including solicitor, accountant, insurer etc.
69For a person who is seeking a report to pursue a builder, this would make the report virtually useless. Unless the report can be shown to the opposition there is no hope of their getting any settlement and there is great difficulty in getting lawyers to draft statements of claim.
70In all the circumstances I do not consider that I should read Clause 7 other than literally. Literally it does not apply to the present case at all because there is no project. Accordingly Clause 7 does not prevent the defendant from showing the report to others or making substantial use of the report.
71This does not mean that the defendant can make as many copies as it likes and distribute the copies to whomsoever it pleases. If Clause 7 does not apply one is thrown back on the general law. This is set out by Jacobs J in Beck v Montana Constructions Pty Ltd [1964-5] NSWR 229 that is that there is an implied consent by the copyright owner to the use of the material by the person engaging him in the manner in which, and for the purpose for which, it was contemplated by the parties at the time of the engagement that it would be used, see page 235 and see also the decision of the Court of Appeal in Torpey Vander Have Pty Ltd v Mass Constructions Pty Ltd (2002) 55 IPR 542 at 556 and following as well as Ng v Clyde Securities Pty Ltd [1976] 1 NSWLR 443 and Gruzman Pty Ltd v Percy Marks Pty Ltd (1989) 99 FLR 116.
2(c). Was there a total failure of consideration?
72Although there is little actual material put in evidence on this it is quite clear from the background that the intended use was to deploy the material in putting to the builder the defects and to proceed if necessary to the CTTT and that requiring solicitors and other experts to look at the material produced by the engineer.
73If clause 7 were applicable there would seem to me that there is a fair argument that there was a total failure of consideration. One must be careful with this phrase. As the Victorian Court of Appeal held in Haxton v Equuscorp Pty Ltd (2010) 28 VR 499 at 525 and following one must ask what was it that the "purchaser" intended to receive under the contract and has he or she received that benefit.
74Accordingly if one is in the situation of the car purchaser in Rowland v Divall [1923] 2 KB 500, where one buys a stolen car and uses it for 6 months before the police repossessed it, there is still a total failure of consideration because what was bargained for was to get title to the car and the incidental use of it for 6 months is no part of that consideration.
75If Clause 7 had applied I would consider that there is a strong argument for saying that there is a total failure of consideration. However, as that clause is meaningless and does not have the effect claimed by the plaintiff, this point does not arise.
2(d). Is the plaintiff entitled to succeed and, if so, for how much?
76Accordingly, there was a contract which supplies the plaintiff to pay for the report. It had an estimate given by the plaintiff of between $7,500 and $8,500, with an indication that not only was that an estimate but the figure was approximate, and that it did not include GST, and that if circumstances change the figure may be more. Furthermore, there was some indication that the figure was likely to be more and at least Mr Jones recognised this by his email of the 18th of December.
77The word "approximately" means that a small latitude of variation is permitted, Wimble, Son & Co v Lillico & Son (1922) 38 TLR 296. Thus in Bellotti v Chequers Development [1936] 1 All ER 89 where "approximately 35" appeared in a document, the court held that 36 was approximately 35, but not 40. One could not by any stretch of imagination consider that $53,500.00 was an approximation of $8,500.00.
78Professor Carmichael assessed the value of the report at $9,085.00.
79On the plaintiff's side a Dr Smith assessed the claim made by the plaintiff as a fair and reasonable charge for the work that had been done. However, I found two major problems with Dr Smith's evidence.
80First, Dr Smith headed his report by saying that he took no responsibility for it. This made it valueless as a piece of evidence. The plaintiff had the opportunity of calling Dr Smith to verify his report but it never did so.
81Secondly, the work done by the plaintiff was clearly over servicing what it was required to do so under the contract. Despite Mr Nash-Smith saying that he would group defects he did not do so, even though the internal memorandum said that this was to be a litigation report without Scott Schedule it was presented in Scott Schedule form at a considerably increased cost.
82Although the defendant kept asking for the up to date costs of the report and was fobbed off, it did receive a series of progress accounts so that it did have some idea of where the costs were accumulating.
83There is no doubt that the defendant obtained some benefit from the plaintiff's report. Before the plaintiff asserted that the licence to use the report was revoked, the defendant had provided the report to its lawyers and Vero.
84When the defendant was advised to cease using the report, it obtained a substitute report from another company. That substitute report cost approximately $20,000.
85On the assumption, which is the most likely scenario, that the substitute report covered the same ground as the original report should have done, one would be inclined to think that the value of the original report was more than $9,085.
86There does not appear to be any criticism of the content of the original report, rather the complaint is one of over servicing: the report was too detailed.
87The evidence on quantum is unsatisfactory. Partly this is because the plaintiff insisted on being paid the whole of its claim, though it's counsel in final addresses asked me to consider a contractual quantum meruit claim as well. However, when that is the case, the judge is still obliged to do the best he or she can to produce a fair figure.
88Whilst there was no challenge to Professor Carmichael's assessment, his figure was more a throw away line as the focus of his report was on other issues. The cost of the report suggests that the real value of the report, were it not for the plaintiff's conduct which rendered it of little use, was perhaps $17,500 or so.
89Thus, were it not for the plaintiff's conduct in preventing the defendant from using the report, I would have found a verdict for the plaintiff for $9,000.
90However, that conduct prevented the defendant from making use of the report except for a short period after its delivery. That use had some value, but in the absence of evidence, only nominal value.
91If I accepted that the proper cost is what Professor Carmichael assessed it at, $9,085.00 or if I find the nominal value of the report at about $500.00, this leads me to find that apart from the claim for interest there should be a verdict for the plaintiff for $585.00.
2(e). Is the plaintiff entitled to claim 18% interest?
92The plaintiff claims 18% interest. It does so under Clause 5.3 of the Conditions of Engagement which I set out earlier in these reasons.
93There are various problems with this claim. The first is; that the 18% is only to apply if there is a failure to pay money when they are due. There was never any claim for $585.00 there was only an excessive claim for $49,000.00 extra.
94The second answer is that the provision in the Conditions of Engagement allowing for 18% interest is void as a penalty.
95The law clearly differentiates between a situation where there is a breach of contract and person in the contract makes a genuine pre-estimate of the damages that will be caused to it if there is a breach, and the situation where a penalty is imposed if there is a breach. The first is quite kosher and the court will award damages in accordance with the agreement, with the second the court will disregard the penalty and award damages if it considers appropriate as to what is fair and reasonable.
96Historically, what happened was that at Common Law the injured party could sue for the amount set out in the contract. However equity would grant an injunction against that claim but would order an issue to be tried as to what the true damages were because of the breach and then would grant a perpetual injunction against the penalty on the condition that the real damages were paid. See Young, Croft and Smith on Equity (2009, Thomson Reuters) at par [5.960] and following. However, in more modern times the equitable relief has been taken over by the Common Law so that now the penalty is considered to be void and the true damages only awarded
97There is some evidence from Mr Demlakian that his company runs on an overdraft and that it is costly to send out reminders, not only for the actual preparation of the reminder letters but also the executive time in looking to see who hasn't paid and preparing the figures to be included in the letter. I am not at all sure that it is relevant that one runs on an overdraft unless there is some indication to the other contracting party that that is the case when the contract is made.
98However, it does not seem to me to matter very much. The fact that there is a flat 18% charge in itself shows that there cannot be a genuine pre-estimate of damage. To give a clear example if a person owes $10,000.00 18% would be $180.00 if on the other hand the debt was $100,000.00 it would be $18,000.00 for the same default. Furthermore the interest is charged if there is any default. Although in the instant case the alleged default was on payment of the bill any minor default would cause the same consequence. The 18% is clearly a penalty. The court interest is sufficient compensation. Accordingly there should be a verdict for the plaintiff for $585.00 plus interest from the date when those monies should have been paid.
2(f). Conclusion on the First Issue
99Thus, on the first issue, the plaintiff succeeds, but only for $585.00.