Leighton v Arogen

Judgment (EX TEMPORE - REVISED 6 NOVEMBER 2012) 1HIS HONOUR: The plaintiff (Leighton) contracted with Ausgrid to carry out works for the upgrade of the electricity supply system to the southern suburbs of Sydney. That project is an extremely substantial one, involving hundreds of millions of dollars in cost and many kilometres of electricity supply cables. It will be, upon completion, a project likely to be of benefit to much of the southern part of Sydney. 2Leighton entered into a subcontract with the defendant (Arogen) under which Arogen agreed to perform horizontal directional drilling services. That "works contract", which was made on 8 March 2011, was varied by a variation agreement made on 6 January 2012. 3There have been previous disputes between Leighton and Arogen as to Arogen's entitlement to be paid for work done under the works contract as varied. Unfortunately, those disputes have led to previous litigation in this Court, relating to the determination of an adjudicator: see Leighton Contractors v Arogen [2012] NSWSC 1323. As a result of the Court's decision, the decision of the adjudicator was quashed and Arogen was held not to be entitled to the fruits of its success. I do not propose to repeat what I said as to the unfortunate fact that the parties were deprived of the benefit of their statutory forum for the determination of this dispute by reason of jurisdictional errors on the part of the adjudicator. 4The works contract (at least before it was varied) contained a provision, cl 43.1(a), which entitled Leighton to terminate it for convenience. It is clear that this was separate to the other rights of termination, which included termination for breach (cl 42), termination by reason of something arising under the head contract (cl 43.1(b)), and termination because work was taken out of the hands of Leighton under the head contract (cl 43.1(c)). 5On 15 October 2012, Leighton gave written notice to Arogen whereby Leighton terminated, or purported to terminate, the works contract for convenience (cl 43.1(a).) 6By cl 43.4 of the works contract, Arogen was required to do a number of things upon termination. It was required to cease work under the works contract (para (a)). Further, and of particular significance for present purposes, it was required to "demobilise from the Site all persons, plant, temporary works, vehicles, equipment and other things owned by or under [its] control..." (para (c)). 7The termination notice directed Arogen to commence demobilisation forthwith, and to complete that process in effect within 14 days. 8After that notice was served, Leighton took possession of the works site to which it related (namely, a site known as the Cooks River site) and engaged guards to secure it. 9Arogen replied, stating that it was considering its position but that it did not accept that the termination was valid. 10There was further correspondence, which dealt among other things with what Leighton said was the continued failure of Arogen to demobilise. Thus, a further direction was given in that regard, on 26 October 2012. 11Later on that day, it appears, Arogen personnel reoccupied the site and locked themselves in. They seem to have brought with them their own security guards. As I understand it, that unsatisfactory position continues until the present time. 12I am concerned today with an interlocutory application made by Leighton for an order requiring Arogen to vacate the site as quickly as possible. That application was brought on short notice. Arogen's response to the application is to offer certain undertakings to the Court and to submit to directions that it prepare its case quickly for either an interlocutory or a final hearing. 13The undertakings offered are that: (1) subject to what follows, Arogen will not enter on the subject land; (2) Arogen will however authorise no more than two of its employees to enter and remain on the land to protect its plant and equipment; (3) Arogen will not impede Leighton from performing work on the land or interfering with Leighton's programme for the works; and (4) Arogen will relinquish possession of the subject land "other than that area required to protect its resources, plant and equipment". 14Leighton submits, although on what evidentiary basis is unclear, that those undertakings are insufficient to permit it to continue with its work. 15There is no doubt that this is a dispute that has a very significant public interest element. The evidence of Mr Iain Lamb, for Leighton, is that Leighton is being held up in completing the subject severable portion of the works, and that the completion date for those works is being adversely affected accordingly. Not only will that expose Leighton to significant expenses (Mr Lamb estimates that the daily cost of delay exceeds $56,500), it will also expose those for whose ultimate benefit the works are being carried out, to delayed completion of the works, and thus delayed enjoyment of the benefits. 16The submissions for Arogen commence with the proposition that it is unusual in the extreme for the Court to grant mandatory interlocutory relief on an interlocutory basis. That may be accepted; and accepted a fortiori where the effect of granting relief on that basis is, in practical if not in legal terms, to determine the substantial issue in the proceedings. In this case, it may be doubted that the grant of relief would determine the substantial issue in the proceedings, in a practical sense. 17Arogen submits that there are difficulties with the notice of termination. First, it submits there is an argument available to it that, as a result of the variation agreement, the ability of Leighton to terminate for convenience was removed. That submission depends on the proposition that there was incorporated into the variation agreement a term of its offer to vary the effect that the offer did not permit removal of any part of the works from Arogen. 18The variation agreement, as executed, contains no restriction on, let alone removal of, Leighton's right to terminate for convenience. Thus, Arogen could only succeed on this aspect of its case if it were to have the variation agreement rectified to include the term said to be agreed as a result of acceptance of the offer to vary. 19There is another problem with this aspect of the argument, which is that it is at least arguable, on the fair construction of the variation offer, that the "removal of any works" was limited to two areas known as Site C and Site F, neither of which is involved in the present dispute. 20Next, Arogen submits that it is a condition of an effective termination under cl 43.1 that Leighton pay Arogen certain costs, which are specified in paras (d) to (g). It would be unusual if the valid exercise of a right to terminate depended on payment of amounts, the quantification of which might well be in dispute (and in good faith dispute): for example, the value of work executed prior to termination (para (d)) or the reasonable cost of materials and goods reasonably ordered (para (e)). It is even more remarkable that this would be so where one aspect of the amounts payable is, by definition, something only assessable once demobilisation has occurred: namely, the costs thereof (para (f)). 21Next, Arogen submits, it may well be that the exercise of the cl 43.1 right of termination is something which must be undertaken in good faith; and that in this case there may well be circumstances where the termination was undertaken other than in good faith. 22It is very hard to see how an entitlement to terminate "for convenience", accompanied by the obligation to pay what the parties must be taken to have agreed would be fair compensation for the consequences of such termination, could be conditioned by any obligation of good faith. On the contrary, I would have thought, such a right was one to be exercised according to idiosyncratic or personal notions of convenience, and not necessarily one constrained by any concept of good faith. In saying this, I accept that it may still be arguable that good faith is a freestanding obligation of the particular contract, and not merely an implied incident of performance of contractual obligations. Of course, if the latter view were correct, it might have little to do with the exercise of a contractual right. 23Be all that as it may, it must be accepted that there are arguments available to Arogen. It must be accepted, also, that those arguments would require evidence to flesh them out, or to raise the factual framework within which they could be articulated and considered. 24I said earlier in these reasons that the effect of granting mandatory interlocutory relief would not amount in substance to the final determination, in a practical sense, of the substantive questions in issue. This is a case where it is unlikely in the extreme that the Court would grant specific performance of the works contract as varied. Whilst I accept that there is no universal rule that the Court will never grant specific performance of a contract for construction or infrastructure work, or more generally a building contract, nonetheless the circumstances in which the Court will do so are extremely limited. One reason why the Court is reluctant to grant specific performance of such contracts is that it may be called upon to supervise that performance, if only because one party or the other will require the Court to consider whether the relevant performance obligations and standards have been met, in accordance with the Court's decree. 25Nonetheless, the substantial question - whether the contract has been validly terminated - is not one that will be determined, in either a practical or legal sense, by the grant of the mandatory interlocutory relief that Leighton seeks. 26In the circumstances that appear from the evidence and submissions, it seems to me that the real issue in the case is whether the contract has been validly terminated. If it has, then, by hypothesis, Leighton is entitled to the relief that it seeks. If it has not, then again by hypothesis, Leighton is not entitled to the relief that it seeks. But in circumstances where, as I have indicated, it is unlikely in the extreme that specific performance would be granted, the necessary consequence is that Arogen would be left to its rights in damages. There is no suggestion that Leighton is not good for such damages as may be proved. 27Further, if Arogen's contentions are correct, then the damages to which it is entitled may go well beyond its cl 43.1 entitlements, and could include such loss of bargain damages as it might be able to prove. 28In this case, there are very significant and important balance of convenience factors. On the one side, there is the presumption that contracts should be performed according to their terms, and that parties should not be able to buy their way out of contractual obligations by paying damages for breach. That is a powerful consideration in Arogen's favour. The effect of enforcing cl 43.4, on an interlocutory basis, would be to permit Leighton to do that very thing if, ultimately, the termination issue were determined in Arogen's favour. 29On the other hand, there is, as I have said, a strong public interest in completion of the works. There is also the circumstance that the costs of delay are accruing at a very substantial daily rate. Finally, there is the circumstance that whatever the outcome of the termination question may be, the real rights that Arogen has are rights in damages; and this is a case where damages would appear to be an adequate remedy for loss of the benefit of the contract if indeed it is proved that Arogen has lost that by reason of some breach on Leighton's part. 30Of course, and harking back to what I said about specific performance, the adequacy of damages as a remedy is another factor that would tell against the grant of a decree for specific performance. 31In those circumstances, and taking into account, as I have already acknowledged, that it is only in a most unusual case that the Court will grant, by way of interlocutory relief, an order of a mandatory nature, nonetheless I think that the balancing of all those factors requires that the relief be granted in this present case. In reaching that conclusion I take into account also that although Leighton precipitated the situation by terminating (or purporting to terminate) the works contract, nonetheless Arogen aggravated it by reoccupying the site, without notice even though it had been locked out, and without articulating either any reason in support of its right to do so or any other justification for its action. 32For those reasons, I conclude that Leighton is entitled to relief on an interlocutory basis in the general terms of prayers 1 to 5 of the summons. Clearly enough, that relief should only be granted on the basis that: (1) Leighton gives the usual undertaking as to damages; and (2) Arogen is allowed what is in all the circumstances a reasonable (but not leisurely) time to remove its personnel and its equipment. 33It is my view that the parties are in a better position than the Court to deal with this latter aspect of the matter and accordingly I propose to stand the proceedings over until tomorrow morning at 9.30am to enable the parties to bring in short minutes of order.