Eden Construction Pty Ltd v State of New South Wales

The applicant's secondary arguments (see [3]) 422 Given my finding at [92] - [94] that Mr Liu, and not the Department, was the Superintendent's Representative under the Kremur Street Pumping Station contract, no question arises as to whether, as Superintendent's Representative under the contract, the respondent owed any duty of care to the applicant. 423 Had question 4(a) been expressed as: 'Did the respondent owe any duty of care to the applicant in respect of the carrying out by the Superintendent's Representative of the duties of the Superintendent under the Kremur Street Pumping Station contract between the applicant and Albury City Council?' I would have answered such a question in the negative. 424 As I understand the applicant's case, the duty of care which it was propounding was a contractual duty. Clause 23 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) in the Kremur Street Pumping Station contract contained an acknowledgement that the Superintendent 'must act impartially in accordance with the provisions of the Contract'. Where the contract enabled the Superintendent to give a direction, that phrase encompassed the making of agreements, the giving of approvals and authorisations, the issue of certificates, the making of decisions, demands and determinations, the provision of explanations, the giving of instructions, the issuing of notices and orders, the granting of permission, acts of rejection and the making of requests or requirements. 425 It is strictly speaking unnecessary to decide whether, upon its true construction, clause 23 required the principal, the Albury City Council, to ensure that the Superintendent appointed by it from time to time would act impartially in accordance with the provisions of the contract. Given that the Superintendent's appointment was a matter for the principal alone and there was no right of objection conferred upon the contractor to take exception to such an appointment (cf the appointment of a Superintendent's Representative under clause 24), I would incline to the view that responsibility for actions that were not taken impartially in accordance with the provisions of the contract would rest with the principal subject, of course, to the other provisions of the contract. Such actions would fall outside the scope of the Superintendent's discretion. It may be that a Superintendent is the agent of a Principal when exercising the functions of a Superintendent only in a very loose sense and that, when exercising certifying functions in respect of which the Superintendent must act honestly and impartially in the context of a contract incorporating clause 23 of the General Conditions of Contract in its unamended form, the Superintendent will not be acting as the agent of the Principal in a strict legal sense (see per Hodgson JA, with whom Mason P and Stein JA agreed in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322 at 338 [50]). Clause 46 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) regulated and limited the right of a dissatisfied contractor to make claims on a principal in respect of acts or omissions of the Superintendent and/or the Superintendent's Representative under the contract. 426 I am not aware of any claims having been made by the applicant in respect of any acts or omissions of the Superintendent and/or the Superintendent's Representative, acting as such, under the contract which would fall to be considered under clauses 23 and 46 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED). 427 Any functions which Mr Liu may have performed as a project engineer working for the Department by issuing Contractor Performance Reports in relation to the applicant's performance under the Kremur Street Pumping Station contract, were not functions which he discharged as the Superintendent's Representative. As an officer of the Department, he was entitled to have regard to information which he gleaned as the Superintendent's Representative, in his preparation of Departmental Contractor Performance Reports (see [131] - [133] above). 428 Insofar as the applicant argues for a duty of care sounding in tort and said to be owed by the Superintendent's Representative to the contractor because of the role that the Superintendent and, thus, the Superintendent's Representative performs under the contract, I am not disposed to find that any such duty of care arises. There was a clear mechanism for challenging decisions of the Superintendent and/or the Superintendent's Representative with which the contractor may have disagreed under the terms of the Kremur Street Pumping Station contract. No relevant case of vulnerability on the part of the contractor can be made out. 429 In the circumstances question 4 should be answered: (a) Does not arise. (b) Does not arise. 430 Prior to Northern Territory of Australia v Mengel ('Mengel')(1995) 185 CLR 307 a special action on the case was available, independently of trespass, negligence and nuisance, where a person suffered harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another (see Beaudesert Shire Council v Smith ('Beaudesert') (1966) 120 CLR 145 at 156). 431 In Mengel the High Court overruled Beaudesert and said that the above statement of principle was unsound and should not be followed. Mengel was a case where some graziers had recovered damages for diminished market opportunities experienced in respect of the sale of certain cattle which was delayed because of quarantine notices unlawfully placed upon the movement of stock from their properties, ostensibly in accordance with a brucellosis eradication campaign. The judgment for the graziers was set aside and a verdict entered for the appellants. 432 At 341 Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ said in Mengel: 'It is the intentional element of the cause of action described in Beaudesert that has given rise to most concern. More precisely, it is that the principle as formulated permits of liability notwithstanding that there is neither negligence nor an intention to inflict harm. So far as intention is concerned, the cause of action does not depend on an intention to harm the plaintiff, but on the doing of an act which is intentional and the inevitable consequence of which is to cause loss to the plaintiff.' (footnote omitted) 433 Their Honours proceeded to give consideration to the tort of misfeasance in public office. Such a tort is committed where damages have been suffered as the result of an act done by a public officer with the intention of causing harm to the applicant or which he knows is or ought to know is beyond power and which involves a foreseeable risk of harm. Misfeasance in public office is a deliberate tort in the sense that there is no liability unless either there is an intention to cause harm or the officer concerned knowingly acts in excess of his or her power (per Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ in Mengel at 345). 434 In Mengel, the graziers lost their case because although the directions given by the relevant inspectors were beyond power there was no finding that they were acting other than in good faith. Nor were they found to have known that they lacked the relevant power or to have been recklessly indifferent to its availability (at 360; see also Sanders v Snell (No 2) (2003) 130 FCR 149 at 173 [94]). 435 In Sanders v Snell at 174 [96] the Full Court gave consideration to the House of Lords decision in Three Rivers District Council v Governor and Company of the Bank of England [2000] 2 WLR 1220. At 174 [96] Black CJ, French and von Doussa JJ said: '… Lord Steyn identified as the ingredients of the tort (at 1230-1231): (a) the defendant must be a public officer; (b) the impugned act must have involved the exercise of power as a public officer; (c) the defendant must have had the requisite state of mind: (i) targeted malice - a specific intention to injure a person or persons; or (ii) knowledge that he has no power to do the act complained of and that it will probably injure the plaintiff. This was said to involve "bad faith" in as much as the public officer does not have an honest belief that the act is lawful. His Lordship also held that recklessness as well as actual knowledge of want of power and likely harm was sufficient to show the state of mind necessary to make out the tort: "It can … now be regarded as settled law that an act performed in reckless indifference as to the outcome is sufficient to ground the tort in its second form."' 436 In Rush v Commissioner of Police (2006) 150 FCR 165 at 197 [121] Finn J said: '… the tort can take two forms. In one form (that of "targeted malice") it must be shown that the public officer in question has acted as such with an actual intent to cause injury to a person or persons. In its alternate form it must be shown either that the officer has actual knowledge both that his or her action was beyond power and would cause or be likely to cause injury or else that the officer has acted with reckless indifference both to the possibility his or her action was beyond power and to the possibility that that action would cause or be likely to cause injury…' 437 My understanding is that the applicant has abandoned any allegation that the respondent committed the tort of misfeasance in public office. In my opinion, any such claim against the respondent would have failed. 438 Turning to the tort of inducing breach of contract or otherwise interfering with contractual relations, it may be observed that it enjoyed an extended application after the decision in Lumley v Gye (1853) 2 E&B 216; 118 ER 749. In Lumley v Guy, Erle J took the view that it was wrongful to procure the breach of a contractual duty. Furthermore he adopted the view that the liability involved a principle of which liability for procuring a breach of contract of hiring was only an example or illustration. It fell within the class of cases which rested upon the principle that the procurement of the violation of the relevant right gave rise to a cause of action (see James v The Commonwealth (1939) 62 CLR 339 at 370). As Dixon J, as his Honour then was, observed in James v The Commonwealth at 370: '… the elements of the cause of action are ill defined. Sometimes malice is said to be an ingredient; but this seems to mean no more than that the defendant must have knowledge of the existence of the civil right or of the facts from which it arises and must act without lawful justification. What constitutes a lawful justification is a matter of some difficulty.' 439 Dixon J also observed that for a third party, without justification or excuse, knowingly to procure a common carrier to refuse, in breach of his duty, goods tendered to him for carriage would amount to an actionable wrong. An act which would in itself be wrongful as infringing a legal right of another person may be justified if shown to be no more than was reasonably necessary for the protection of some actually existing superior legal right in the doer of the act being a right in real or personal property or a right or duty found in statute (per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ in Zhu v Treasurer of the State of New South Wales ('Zhu') (2004) 218 CLR 530 at 582 [144] and 587-588 [161]-[163]). Where the superiority of right rests in some characteristic of the general law, temporal priority of other purely contractual rights will not suffice (see Zhu at 587 [160]). 440 It seems clear to me that, on the facts of this case, no case can be made out by the applicant that any conduct of the respondent or any officers of the Department amounted to inducing a breach of the 7 January 1994 agreement or otherwise interfering with the contractual relations between the applicant and the respondent thereunder. Nor can it be said that the respondent or any of the officers within the Department induced a breach of the contract between the applicant and the Albury City Council or otherwise interfered with the contractual relations between the applicant and the Albury City Council under the Kremur Street Pumping Station contract. 441 The intervention by officers of the Department in relation to the award of other contracts following the submission of tenders therefor by the applicant does not correspond with the illustration provided by Dixon J in James v The Commonwealth of an actionable wrong arising from a third party knowingly procuring a common carrier to refuse in breach of his duty goods tendered to him for carriage. The responsibilities of parties to whom the applicant submitted tenders were not equivalent to those of a common carrier. 442 In the foregoing circumstances I would answer question 5 in the negative. 443 This brings me to a consideration of the applicant's claim that the respondent contravened s 46(1)(c) of the Trade Practices Act 1974 (Cth) ('the Act'). 444 Section 46 of the Act has no application unless, because the respondent was carrying on a business, either directly or by an authority of the State, it became bound by Part IV of the Act. 445 In s 4(1) of the Act 'authority' in relation to a State was defined to mean: '(a) a body corporate established for a purpose of the State … by or under a law of the State …; or (b) an incorporated company in which the State … or a body corporate referred to in paragraph (a), has a controlling interest;' In the same section 'business' was defined to include 'a business not carried on for profit'. 446 Section 2B of the Act relevantly provided: '2B(1) The following provisions of this Act bind the Crown in right of each of the States, … so far as the Crown carries on a business, either directly or by an authority of the State …: (a) Part IV; …' 447 In the circumstances of this case it is unnecessary to consider any 'authority' as, plainly, no body corporate or incorporated company was involved on the State's behalf. The question then becomes did the activities of the Department fall within the expression 'so far as the Crown carries on a business … directly'. Section 2C of the Act did not define the expression 'carries on a business'. Rather, it described activities which 'do not amount to carrying on a business' (emphasis added). Section 2C relevantly provided: '2C(1)For the purposes of sections 2A and 2B, the following do not amount to carrying on a business: (a) imposing or collecting: (i) taxes; or (ii) levies; or (iii) fees for licences; (b) granting, refusing to grant, revoking, suspending or varying licences (whether or not they are subject to conditions); (c) a transaction involving: (i) only persons who are all acting for the Crown in the same right (and none of whom is … an authority of a State ...); or … (2) Subsection (1) does not limit the things that do not amount to carrying on a business for the purposes of sections 2A and 2B. …' 448 NT Power Generation Pty Ltd v Power and Water Authority ('NT Power')(2004) 219 CLR 90 was a case concerning a statutory authority of the Northern Territory, namely the Power and Water Authority, which regulated and supplied electricity in the Territory. It, amongst other things, generated electricity at stations it operated, owned or controlled and owned and operated electricity distribution infrastructure. It was authorised to license other persons to store, reticulate and sell electricity in the Territory. 449 At 110 [52] McHugh A-CJ, Gummow, Callinan and Heydon JJ observed that one matter was not controversial namely that the Authority 'was carrying on a very substantial business'. At 117 [68] their Honours observed that the Act was seeking to advance 'the broad goal of promoting competition'. At 116 [67] they said: 'It may be accepted that the conduct proscribed by the Act, if it is to fall within s 2B, must be engaged in in the course of PAWA [the Authority] carrying on a business.' 450 At 116 [66] their Honours addressed what constituted carrying on business within the meaning of s 2B as follows: '66 The legislative context. While the word "business" in any particular context takes its meaning from that context, normally it is a "wide and general" word. Its meaning in the Act is widened by s 4(1), since "business" includes "a business not carried on for profit". The legislation as a whole is remedial; s 2 provides that the object of the Act is "to enhance the welfare of Australians through the promotion of competition …" The purpose of introducing s 2A, as explained by the Swanson Committee and noted above, was to ensure that the Commonwealth Government should, in its commercial activities, be subject to the same regime as corporations. One of the goals of the legislation recommended by the Hilmer Report was to ensure that the legislation applied to businesses conducted by the governments of the States and Territories to the same extent as it did to those conducted by the Commonwealth. The Second Reading Speech delivered in the House of Representatives when the Reform Act was introduced as a Bill stated that it and the three Agreements of 11 April 1995 represented "a complete response to the recommendations of the Hilmer committee". It was said that the amendments to the Act, taken with State and Territory application legislation, ensured that "the prohibitions against anti-competitive conduct can be applied to all businesses in Australia". It was further said that one of the main features of the Bill was that it "extends the operation of [the Pt IV]competitive conduct rules to currently exempt businesses". Section 2B was clearly a crucial provision in attaining these goals.' (footnotes omitted; emphasis added) 451 In NT Power the Court had no difficulty in concluding on the facts of that case that the Crown in right of the Northern Territory carried on a business by an authority of the Territory. 452 The question of the meaning of s 2B of the Act arose only peripherally in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd ('Baxter')[2006] FCAFC 128. In that case Baxter Healthcare Pty Limited was a supplier of sterile fluids to public hospitals. Exception was taken to a pricing structure whereunder Baxter Healthcare Pty Limited offered to supply sterile fluids on an item-by-item basis at high prices and to offer to supply the same items on an exclusive sole supply basis for substantially lower prices. It was common ground that the Act did not bind any of the States with whom Baxter Healthcare Pty Limited dealt, it having been conceded for the purposes of the case that none of the States or Territories was engaged in carrying on a business so far as was relevant to the case, notwithstanding that there was a very considerable business involved in obtaining and supplying the States and Territories with the goods in question (see [69]). In Baxter the issue was whether or not the immunity of the various State governments extended to Baxter Healthcare Pty Limited as the relevant supplier of the sterile fluids to the public hospitals. A Full Court comprising Mansfield, Dowsett and Gyles JJ held that the supplier of the sterile fluids was not bound by Part IV of the Act. 453 Whilst the restructured arrangements (see [52]-[56] above) applicable to the letting of government contracts and the execution of public works in New South Wales where government departments or local councils were the relevant 'agency' called for such agents to be served by the Department in an interface role with the private sector, it seems clear to me that, by the conduct of the Department, the Crown in right of the State of New South Wales (the respondent) did not carry on a business directly within the meaning of s 2B of the Act. 454 True it is that cost recovery arrangements were put in place whereby the Department became funded by the 'agencies' which were its 'clients'. However, this was simply an internal government funding arrangement. It would be bizarre to imagine one government department suing another for non-payment of relevant fees. Under the Crown Proceedings Act 1988 (NSW) such an action would be 'State of New South Wales v State of New South Wales'! 455 Apart from the activities of the Department not having the character of a business, I would also incline to the view that the transactions between the Department and its agencies fell within the exclusion for which s 2C(1)(c)(i) of the Act provided. 456 In the circumstances I would answer question 2 in the negative. 457 Given my finding in respect of question 2 it is probably unnecessary to address question 3. Paragraph 14 of the Amended Points of Claim filed 8 May 2006 was expressed as follows: '14. Further or alternatively, at all material times the Plaintiff [the applicant] was engaged in tendering for and the provision of services in respect to New South Wales Government civil works for Sewerage treatment, storm water drainage and related works collectively known as civil construction works …' 458 I would not be disposed to so define the 'other market' for the purposes of s 46(1)(c) of the Act. 459 Virtually no evidence was directed at the definition of the relevant market. Were it necessary for me to decide what the market was in which the applicant was engaged I would describe it as the market for the provision of civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works in New South Wales (see inter alia s 4E of the Act). 460 It follows that the answer to question 3(a) should be no. 461 Section 46 of the Act relevantly provided: '46(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of: …. (c) deterring or preventing a person from engaging in competitive activity in that or any other market.' 462 Were the activities of the Department in providing construction management services referrable to the letting of government contracts and the construction of public works in New South Wales such as to bring the respondent within the reach of s 46(1)(c) of the Act, I would not conclude that the respondent took advantage of its market power in the government construction management services market, if that be the market in which it was engaged, for the purpose of deterring or preventing the applicant from engaging in competitive activity in the market for the provision of civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works in the New South Wales. The activities in which the Department was engaged were not activities for a proscribed purpose within the meaning s 46. They were protective of the public interest, even if, in the execution, the relevant flawed departmental advice adversely impacted upon the applicant. 463 To come within the proscription for which s 46(1)(c) provides, were it to apply to the respondent, it would have to be demonstrated that the applicant would, but for the respondent taking advantage of its market power be likely to have entered the 'other market' in competition with the respondent. The respondent was not a participant or potential participant in any market in which the applicant was a participant or potential participant and a likely competitor. 464 In my opinion, question 3(b) should be answered in the negative. 465 I turn now to the applicant's claim that the respondent was guilty of negligent misrepresentation. 466 The first issue to consider is whether the relationship between the applicant and the respondent at the relevant time in or about 1999 was such that a duty owed by the respondent to the applicant should be found to exist which required the respondent to exercise reasonable skill and care in providing advice as to the applicant's past performance and suitability for appointment as a contractor to provide civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works to third parties who may be contemplating using the services of the applicant. 467 Claims for damages for pure economic loss present peculiar difficulty (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Ltd v CDG Pty Ltd ('Woolcock') (2004) 216 CLR 515 at 529 [21]). 468 Damages for pure economic loss are not recoverable if all that is shown is that the respondent's negligence was a cause of the loss and the loss was reasonably foreseeable (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock at 530 [21]). 469 In Woolcock the High Court found that no duty of care was owed by an engineering company or its employee project manager to a purchaser to avoid damage in the form of economic loss said to have been sustained as a result of the settlement of the footings of a warehouse and office complex, for the design of which they had been responsible, or the foundation material beneath them or both. At 533 [31] Gleeson CJ, Gummow, Hayne and Heydon JJ said: 'Neither the facts alleged in the statement of claim nor those set out in the Case Stated show that the appellant was, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building. Those facts do not show that the appellant could not have protected itself against the economic loss it alleges it has suffered.' 470 In many cases, there will be no sound reason for imposing a duty on a respondent to protect an applicant from economic loss where it was reasonably open to the applicant to take steps to protect itself (see per McHugh J in Perre v Apand Pty Limited ('Perre') (1999) 198 CLR 180 at 225 [118]). 471 In Perre McHugh J said at 220 [104]-[105]: '104 What is likely to be decisive, and always of relevance, in determining whether a duty of care is owed is the answer to the question, "How vulnerable was the plaintiff to incurring loss by reason of the defendant's conduct?" So also is the actual knowledge of the defendant concerning that risk and its magnitude. If no question of indeterminate liability is present and the defendant, having no legitimate interest to pursue, is aware that his or her conduct will cause economic loss to persons who are not easily able to protect themselves against that loss, it seems to accord with current community standards in most, if not all, cases to require the defendant to have the interests of those persons in mind before he or she embarks on that conduct. 105 The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant's knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.' 472 A not dissimilar issue to that presently under consideration arose in Sullivan v Moody (2001) 207 CLR 562. Sullivan was the father of a girl who was taken by her mother to a sexual assault referral centre. The opinion was formed that the child had been sexually abused whereupon the South Australian Department of Community Welfare and the child's mother took steps to ensure that Sullivan did not have access to the child. Allegations against him were pursued in Family Court proceedings brought by the mother which were ultimately resolved in Sullivan's favour. Thereupon he commenced proceedings in the Supreme Court of South Australia claiming that those who had conducted the examinations and assessments owed him a duty of care and that the State and its instrumentalities were vicariously liable for their negligence. The Court, comprising Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ found that the duty of care for which Sullivan contended did not exist. At 580-581 [53]-[54] their Honours said: '53 Developments in the law of negligence over the last thirty or more years reveal the difficulty of identifying unifying principles that would allow ready solution of novel problems. Nonetheless, that does not mean that novel cases are to be decided by reference only to some intuitive sense of what is "fair" or "unfair". There are cases, and this is one, where to find a duty of care would so cut across other legal principles as to impair their proper application and thus lead to the conclusion that there is no duty of care of the kind asserted. 54 The present cases [Sullivan's was one of two that the Court was considering together] can be seen as focusing as much upon the communication of information by the respondents to the appellants and to third parties as upon the competence with which examinations or other procedures were conducted. The core of the complaint by each appellant is that he was injured as a result of what he, and others, were told. At once, then, it can be seen that there is an intersection with the law of defamation which resolves the competing interests of the parties through well-developed principles about privilege and the like. To apply the law of negligence in the present case would resolve that competition on an altogether different basis. It would allow recovery of damages for publishing statements to the discredit of a person where the law of defamation would not.' (footnotes omitted; emphasis added) 473 The Departmental procedures in the present case allowed for exception to be taken to Contractor Performance Reports and the listing of contractors on the Department's Contractor Review Lists. The applicant was not vulnerable in the sense that it was unable to seek redress for what it considered to be inappropriate assessments, which may have founded later adverse comments concerning the applicant, imparted by Departmental officers to others. 474 Furthermore, the applicant did not itself rely upon any representations, which were made concerning it, to its detriment (see Tepko Pty Limited v Water Board (2001) 206 CLR 1 at 16-18 [46]-[51]). 475 In my opinion the respondent was not under a duty of care to the applicant as alleged. Accordingly, question 1 should be answered in the negative. 476 Given the answers to questions 1 to 6 and the facts and matters referred to above, question 7 should also be answered in the negative. 477 The costs of the determination of the separate questions should be reserved. I certify that the preceding four hundred and seventy-seven (477) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Construction of clause 4 of the 7 January 1994 agreement 14 This brings me to a consideration of the construction to be placed upon clause 4 of the 7 January 1994 agreement. The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop ((1888) 39 Ch D 387 at 393), which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case ((1880) 16 Ch D 681 at 686). Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas and Co. Limited. v Arcos Limited. ((1932) 147 LT 503 at 514) that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v Australian Chilling and Freezing Co. Ltd. (1968) 118 CLR 429 at 437) (per Gibbs J, as his Honour then was, in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109-110). 15 It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179 [40]). 16 Actual beliefs and intentions are, generally speaking, irrelevant in the determination of the legal rights and obligations flowing from a written agreement (see per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ in Equuscorp Pty Ltd v HGT Investments Pty Ltd ('Equuscorp') (2005) 218 CLR 471 at 483 [34]). 17 Where the language of a contract has a plain meaning evidence of surrounding circumstances is not admissible to assist in the interpretation of the contract (per Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales ('Codelfa') (1982) 149 CLR 337 at 352). 18 There is no definitive statement in the Australian authorities concerning the regard, if any, that should be given to deletions such as those appearing in clause 4 of the 7 January 1994 agreement. 19 In Timber Shipping Co. S.A. v London & Overseas Freighters Ltd [1972] AC 1 at 15 Lord Reid said: 'If the words were first inserted by the draftsman of the agreement and then deleted before signature then I have no doubt that they must not be considered in construing the agreement.' In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 at 491, Rogers CJ Comm D said: 'More recently in Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975]2 Lloyd's Rep 197, Lord Cross, with whom Lords Hodson and Wilberforce agreed, clearly endorsed the use of deletions as an aid to the construction of contracts.' After reviewing the authorities his Honour proceeded to take into account the omission of a specific provision from a precedent, to which regard had been had in drafting a loan document, in order to reach the conclusion that the loan document should be construed as creating a non-recourse loan. His Honour found the inference to be drawn from the omission to be clear. 20 In Elliott v Reading [1999] WASCA 11 Ipp J, with whom Malcolm CJ and Pidgeon J agreed, applied the judgment of Rogers CJ Comm D. At [43] his Honour said: '… account has to be taken of the fact that, in entering into the Final Deed, the parties deliberately omitted the subject to finance condition contained in the First Deed. In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 Rogers CJ Comm D, held that a deliberate deletion of a clause in a loan agreement expressly providing for repayment by a borrower ousted an obligation, said to be implied, to the effect that the borrower repay the loan. His Honour relied in coming to this conclusion on the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW at 352-353. In my opinion the same reasoning is applicable here. Once the parties agreed to exclude from the Final Deed the subject to finance condition that was contained in the First Deed, it is not open to imply a condition in the Final Deed to substantially the same effect as the one deliberately excluded.' 21 In the applicant's Amended Points of Claim filed 8 May 2006 it asserted that an express and/or implied term of the 7 January 1994 agreement was that the respondent would permit the applicant 'to do work …, provided always all other normal Prudential requirements were satisfied.' In addition an implied term was alleged that the respondent 'would act in good faith and/or in accordance with its established guidelines in its involvement with the Plaintiff's [applicant's] tenders and its involvement in the Plaintiff's [applicant's] carrying out of work'. A further implied term was alleged that 'the status of the Plaintiff [applicant] and/or its Directors as a suitable contractor would be restored'. 22 Terms may be implied in one of four ways (per Heydon JA, as his Honour then was, in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164 [28]). These were summarised by Hodgson J in Carlton & United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of New South Wales, 11 June 1985) as follows: '(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown (1928) 40 CLR 540 at 553-4. (ii) Implications from the "nature of the contract itself" as expressed in the words of the contract: see Liverpool City Council v Irwin [1977] AC 239. (iii) Implications from usage (for example, mercantile contracts). (iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.' 23 In relation to the fourth mentioned type of implied term the classic test is identified in the advice of Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel in B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 283 as follows: '… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.' The test promulgated by the Privy Council was approved by Mason J in Codelfa. 24 The general rule applicable to every contract, that each party agrees to do all such things as are necessary on its part to enable the other party to have the benefit of performance of the contract, is one which arises by implication and is of the second type mentioned above (see Butt v M'Donald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Limited v St. Martins Investments Proprietary Limited (1979) 144 CLR 596 at 607 and Fitzgerald v F J Leonhardt Pty Limited (1997) 189 CLR 215 at 219 and 226). 25 One issue that has not been specifically addressed by the parties is the duration of the rights and obligations conferred by clause 4 of the 7 January 1994 agreement. As a commercial agreement of indeterminate duration it seems to me that there would be a presumption against permanence. As McNair J said in Martin-Baker Aircraft Co. Ld. v Canadian Flight Equipment Ld. ('Martin-Baker') [1955] 2 QB 556 at 577: 'The common law, in applying the law merchant to commercial transactions, has always proceeded more on the basis of reasonableness in filling up the gaps in a contract which the parties have made on the basis of what is reasonable, so far as that does not conflict with the express terms of the contract, rather than on the basis of rigidity.' 26 Commercial contracts of indeterminate duration would normally be determinable upon reasonable notice (see Martin-Baker at 577 and Wintergarden Theatre (London) Limited v Millennium Productions Limited [1948] AC 173 at 191). 27 It lies upon a person who says that a contract is revocable or determinable to show either some expression in the contract itself, or something in the nature of the contract, from which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in some way or other subject to determination. Contracts which involve more or less of trust and confidence, more or less of delegation of authority, more or less of the necessity of being mutually satisfied with each other's conduct, more or less of personal relations between the parties will fall into the last mentioned category (per Sir W M James LJ in Llanelly Railway and Dock Company v London and North-Western Railway Company (1873) VIII LR Ch App 942 at 950). 28 In Prints for Pleasure Ltd. v Oswald-Sealy (Overseas) Ltd. (1968) 88 WN (Pt 1) (NSW) 375 at 383 Macfarlan J concluded that the agreement there under consideration was not one where the parties had said that it was to continue for an indefinite period of time which was not determinable except by breach. His Honour construed it as an agreement that would continue until and when Australian orders for fine art prints under the contract were less than 10,000 per annum. His Honour considered that the provisions of the agreement demonstrated that at the time when the agreement was made the parties had considered the period of time during which it was to continue. 29 The applicant eschewed any notion that clause 4 of the 7 January 1994 agreement gave the applicant any special right to be on a pre-tender or pre-qualification list. Furthermore, it does not contend that clause 4 obliged the respondent, through the Department, to award contracts to the applicant. Rather, it was submitted that it required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring any tender so submitted to be rejected. 30 It could hardly be said that the agreement was expressed in felicitous terms. 31 It uses the word 'prudential' in the phrase 'Subject to normal prudential requirements by (sic) the PWD'. It also uses the phrase 'provided always all other normal Dept. requirements are satisfied'. In the Oxford English Dictionary (2nd Ed, 1989) Vol XII the word 'prudential' is defined, relevantly, as follows: 'Of, belonging to, or of the nature of prudence; involving prudence; characterised or prescribed by forethought and careful deliberation.' In the Macquarie Dictionary (4th Ed, 2005) 'prudential' is defined relevantly as: 'of, relating to, or characterised by prudence.' 'Prudence' is itself defined relevantly as: '1. cautious practical wisdom; good judgement; discretion 2. the quality or fact of being prudent 3. regard for one's own interests 4. provident care in management; economy or frugality.' 32 In my opinion the phrase 'Subject to normal prudential requirements by the PWD' should be construed as: 'Subject to the normal requirements of the Department, which call for forethought and careful deliberation in protecting the respondent's interests.' 33 The 7 January 1994 agreement was plainly directed at resolving all outstanding differences between Eden Constructions (NSW) Pty Limited and the Department in relation to the Norah Head contract. It brought about a 'full & final settlement' of all claims and rights that the Department had against Eden Constructions (NSW) Pty Limited under or arising out of the Norah Head contract and all claims and rights that Eden Constructions (NSW) Pty Limited had against the Department under or arising out of that contract. It secured the release of Eden Constructions (NSW) Pty Limited's bank guarantee in relation to the Norah Head contract. It also secured an agreement in relation to the burden of costs with respect to the several claims and counterclaims under the Norah Head contract. 34 It may be said that the agreement had the effect of 'wiping the slate clean'. 35 In my opinion it could not be contended that clause 4 of the agreement conferred any rights in perpetuity on Eden Constructions (NSW) Pty Limited or, given the respondent's concession referred to above, on the applicant. I accept the applicant's submission that clause 4 relevantly required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring that the tender or tenders be rejected. But the arrangement had no permanence. It simply provided a starting point and an opportunity for a new relationship to be established. Dissatisfaction with any work undertaken by the applicant after 7 January 1994 could properly be taken into account by the Department in relation to any future opportunities for work for which the applicant might see fit to tender thereafter. Plainly, normal prudential requirements and other normal Departmental requirements entitled the respondent to limit the scope of the work for which the applicant, as a company with which it had not had any prior dealings, could tender. The respondent was not obliged by its settlement with Eden Constructions (NSW) Pty Limited to put to one side its normal prudential and other requirements in allowing a new working relationship with the applicant to be established. 36 No question of implication of terms from usage or so as to give the relevant contract business efficacy arise in the circumstances of this case. The only relevant implications are those which arise from the nature of the contract and/or are contained in the express words of the contract itself. These have been addressed in the above observations on the true construction of the 7 January 1994 agreement. 37 The applicant acknowledged that, following the 7 January 1994 agreement, it secured the contract with the Albury City Council for the Kremur Street Pumping Station. It accepted that there were 'some issues' in relation to the performance of that contract but submitted that it performed it 'fairly well'.

At a glance

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Judgment (4 paragraphs)

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Legislation Cited (4)

Cases Cited (29)

Cited By (2)