Meredith Projects v Fletcher Construction [2000] NSWSC 493 | Case summary

Meredith Projects v Fletcher Construction [2000] NSWSC 493 | Case summary | Zoe

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HIS HONOUR: 1 Introduction 2 In October 1990 the plaintiff, Meredith Projects Pty Limited, for which Mr P.R. Callaghan of Senior Counsel and Mr D.R. Sibtain of Counsel appeared, entered into a Pre-Commitment Agreement with the Commonwealth of Australia whereby the Commonwealth agreed to lease from it a seven-storey office building, which the plaintiff intended to construct at 2-14 Meredith Street, Bankstown, for long-term occupation by the Australian Taxation Office, ("the ATO"). The agreement provided, inter alia, for the basic way in which the building was to be constructed, for the supervision of the construction by a superintendent on behalf of the Commonwealth, and for the plaintiff to deliver possession of the premises to the ATO on the Commencement Date as defined in a lease annexed to the agreement. The building was completed, the lease entered into, and the ATO went into occupation and remains the plaintiff's lessee. On 27 November 1990 the plaintiff, as Principal, entered into a Lump Sum Design and Construct Contract, ("the Building Contract"), with Jennings Group Limited trading as Jennings Constructions Services, ("JGL"), as Contractor, by executing a document entitled Articles of Agreement to which were annexed the detailed provisions of the Building Contract. The Articles of Agreement provided in Recital J, inter alia, that JGL acknowledged that it was the paramount purpose and intention of the plaintiff that by entering into the Building Contract and by JGL's satisfying its obligations under it, the plaintiff would thereby satisfy its obligations to the Commonwealth under the Pre-Commitment Agreement:- 3 ".. so far as the design and construction of the Building are concerned, and the Contractor acknowledges it has reviewed the Pre-Commitment Agreement and acknowledges and agrees with the Principal that if the Contractor complies with its obligations under this Contract, then the Principal will thereby have satisfied its obligations under the Pre-Commitment Agreement with respect to design and construction of the Building." 4 The Articles of Agreement stated that JGL, subject to the contractual conditions, would carry out all activities involved in the design of the Works with due care and skill; and execute the Works referred to in the Building Contract and ancillary documents for the sum of $31,260,800 "and any other sum as shall become payable at the times and in the manner specified in the conditions". Clauses 20 and 21 of the Building Agreement stated:- "20. The Contractor warrants to the Principal that the design of the Works has been and shall be carried out with due care and skill appropriate to the undertaking and that the design of the Works is suitable for the intended purposes of the Principal as referred to in Recital J. … 5 21. The Contractor shall, subject to these Conditions, carry out and complete the Works shown in the Building Documentation with a high degree of professional skill, care, competence and diligence expected of an architect and builder of first class office accommodation."

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"Signed by Rae Edwina Cottle in the presence of …" 6 I have set out these provisions because one of Mr Callaghan's submissions was that the Articles of Agreement constituted a deed so that the limitation period for bringing an action against JGL founded on breach of them and hence, in one way in which the case was argued, against the defendant, pursuant to the Limitation Act 1969, is twelve and not six years as would be the case in respect of a cause of action for breach of contract not founded on a deed: s.14(1)(a). 7 On 28 April 1992 JGL reached practical completion and, thereafter, there were disputes between the plaintiff and it concerning the quality of the work. 8 It seemed to be common ground that on 31 March 1993 the only complaint, which is now relevant in these proceedings, namely that the roof leaks, was first made. Originally a number of complaints about workmanship were in issue but all, save for the leaking roof, were resolved prior to the hearing by the building and construction experts retained by the parties conferring and reaching agreement. Thus, except for the question of costs in relation to those disputes, they play no further part in the litigation and it is only necessary to direct attention to the roof problems. 9 The roof, construction of which was completed by the end of November 1991, comprises three members. The lowest is a pre-tensioned concrete construction slab. This is not intended to waterproof the building, although it acts as an impediment to water, and it is covered by a membrane, which is intended to ensure that water does not penetrate to it. The membrane was specified to be about 1.2mm thick. Over the membrane is a wearing layer of thin concrete intended to protect it. Whilst each of these members will assist in keeping out water, the vital one is the membrane. A potential and recognised difficulty is that the pre-tensioned concrete slab will shrink for a period after it is laid and the membrane is applied. If the membrane is not applied properly or does not meet the specification, there is a real prospect that it will split or crack as the slab shrinks. Once the membrane's integrity is damaged there is a probability that water will leak through it and then through any cracks in the pre-tensioned slab into the insulation and then to the ceiling of the building. On 31 March 1993 a meeting was held between representatives of the plaintiff, the ATO and the defendant, Fletcher Construction Australia Limited, for which Mr M.D. Young of Counsel appeared, with a view to noting all outstanding defects and rectifying them by 28 April 1993. The defects were listed in the schedules to the minutes of the meeting. One was a leak in the Deputy Commissioner's office at Level 6 and, under the heading "External Roof Area", it was stated:-

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Mr Poirier first became involved with the building as the Project Manager in about 1991, whilst employed by JGL. By early 1993 the plaintiff was concerned about the financial ability of JGL to meet its continuing obligations of rectification under the Building Contract. In these circumstances the plaintiff and JGL entered into a Deed of Release and Variation on 30 July 1993 and, on the same day, the plaintiff and the defendant entered into a Performance Guarantee. It appears, in so far as the sequence in which the documents were executed is relevant, that the Deed of Release and Variation was executed before the Performance Guarantee. 13 The Deed Of Release And Variation And The Performance Guarantee 14 The Deed of Release and Variation recited the entry into the Building Contract; the completion of the Works and the issue by the ATO's Superintendent of a final certificate under clause 5.13(b) of the Pre-Commitment Agreement; JGL's claim that $545,938 in progress payments remained outstanding to it together with all interest accrued on that amount on deposit with State Bank of New South Wales Limited since 13 February 1993; the plaintiff's agreement to pay JGL the "Agreed Amount" in full and final satisfaction of its monetary obligations to it under the Building Contract and to issue to it the Final Certificate in accordance with Condition 24.15(a) of the Building Contract "subject to JGL entering into this deed"; the agreement of the defendant to enter into an agreement with the plaintiff guaranteeing the obligations and liabilities of JGL under the Building Contract and this Deed "due to concerns of" (the plaintiff) "as to JGL's ability to continue to perform its obligations under those documents"; and JGL's agreement to pay a fee of $100,000 to the defendant to procure its entry into the Performance Guarantee with the plaintiff "and an agreement with JGL concerning defects rectification". 15 The "Agreed Amount" was $557,401.44. Clause 2, which is headed "Release & Final Certificate", stated:- "2.1 In consideration of the payment by Meredith Projects to JGL of the Agreed Amount (receipt of which is hereby acknowledged by JGL), the variation of the Performance Security contemplated by clause 4.2 and the issue of the Final Certificate to JGL under the Building Contract, JGL hereby: (a) acknowledges and agrees that Meredith Projects has paid to JGL all sums due, owing or payable, or which may become due, owing or payable by it under or pursuant to the Building Contract, as amended, varied and supplemented from time to time and that no further sums on any account are due, or may become due, by Meredith Projects to JGL in connection with the design and construction by JGL of the Bankstown Australian Taxation Office; and (b) releases and discharges Meredith Projects from all liability and obligations on its part to be performed or satisfied under the Building Contract as amended, varied and supplemented from time to time other than liability arising from: (i) claims made by JGL disputing claims made by Meredith Projects under the Performance Security; and (ii) the obligation of Meredith Projects to return the Performance Security in accordance with the provisions of clause 8. 2.2 Meredith Projects will issue to JGL the Final Certificate in accordance with Condition 24.15(a) of the Building Contract immediately upon receipt by Meredith Projects of: (a) the FCAL Performance Guarantee in the form annexed to this deed, duly executed by FCAL; and

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(b) this deed, duly executed by JGL." 16 The Performance Security was another document and is not to be confused with the Performance Guarantee. 17 Clause 3 set forth JGL's direction to the plaintiff as to the payment of the Agreed Amount, including the payment of $100,000 to the defendant. 18 Clause 5, which is headed "Rectification of Defects", provided in clause 5.1 that JGL would carry out and complete the rectification works specified in Schedule 2 within ten Working Days of the date of the Deed. Schedule 2 was not concerned with the roof. This clause and Schedule 2, accordingly, dealt with defective work, which required rectification and which it was agreed would be rectified. 19 Clause 5.2 provided that JGL would replace and do all other reasonable acts to rectify the warped fire escape door notified by the plaintiff to JGL within thirty working days of the date of the Deed. Clause 5.3 provided:- 20 "JGL will rectify any omission, fault or defect in respect of the items specified in schedule 3 (whether due to faulty design, workmanship, materials or otherwise) discovered by Meredith Project or which becomes apparent during the period of 12 months commencing on the date of this deed within 30 Working Days (or such longer period as may be notified by Meredith Projects to JGL having regard to the extent of the rectification works required) after the date of receipt by JGL from Meredith Projects of a written notice specifying the omission, fault or defect to be rectified." 21 The items referred to in Schedule 3 included "waterproofing of the roof membrane", and "all other matters ancillary or incidental to completion of any of the above items". 22 There was no evidence that the plaintiff exercised its rights under this clause, the general effect of which was to extend the Defects Liability Period in respect of the matters set forth in that Schedule for a further twelve months, notwithstanding that a Final Certificate was being issued pursuant to condition 24.15(a). 23 Clause 5.4 provided that JGL would carry out and complete the rectification works pursuant to clause 5 "with a high degree of professional skill, care, competence and diligence expected of a builder of first class office accommodation and otherwise as if the obligations of JGL under this clause 5 were obligations on its part to perform under the Building Contract". This substantially repeated clause 21 of the Building Contract. Clause 12, which is headed "Confirmation and Ratification", stated:- "12.1 The parties confirm the terms of the Building Contract (as varied in the manner set out in this deed) and acknowledge that the Building Contract will continue in full force and effect in accordance with its terms notwithstanding the execution of this deed.

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"Notwithstanding Conditions 24.12(a) and 24.12(b), the Contractor acknowledges that where the Principal proves, after the date of the Final Certificate, that it has suffered damages by reason of the failure of the Contractor to duly perform its obligations under this Contract with respect to the design and construction of the Works, the Principal will be entitled to institute proceedings against the Contractor to recover from the Contractor all damages so suffered by the Principal." 26 Relevantly for present purposes, condition 24.12(b) provided that subject to condition 24.12(c) the issue of a Final Certificate constituted "conclusive evidence" that the Works had been finally and satisfactorily executed by JGL, except in so far as it may be proved in the ways stated that the Final Certificate was erroneous in any particular for the reasons there stated. The obvious intention of condition 24.12(c) is to deny JGL the right to rely on the "conclusive evidence" provision where the exceptions in condition 24.12(b) do not apply, and the plaintiff is able to satisfy the requirements of condition 24.12(c). Mr Callaghan relied heavily on condition 24.12(c) as creating continuing obligations, in the circumstances stated, on JGL. Whilst it had that effect, I do not consider that it brought about an open ended obligation so far as time is concerned. If the Articles of Agreement are a contract under hand, the limitation period is six years from the accrual of the cause of action: (s.14(1)(a) of the Limitation Act), assuming that the defendant is not precluded from relying on that provision by other matters raised by the plaintiff. If the Articles of Agreement are a deed there seemed to be no issue that the limitation period was met. The Performance Guarantee, which stated that it was executed as a deed, recited the entry into the Building Contract; that $545,948 in progress payments remained outstanding under it "due to concerns of Meredith as to JGL's ability to continue to perform its obligations under the Building Contract"; and:- 27 "C. In order to allay Meredith's concerns and provide it with the comfort it requires so that it will pay (the outstanding amount) and any further amounts to be paid under the Building Contract Fletcher Construction Australia Limited ('FCA') agrees to enter into this agreement." 28 The operative part of the Performance Guarantee provided, in paragraph 1, that in consideration of the granting of the guarantee referred to in clause 2, the plaintiff would pay the defendant $100,000 at the direction of JGL, and that the defendant acknowledged its receipt as the payment of a fee by JGL to it in consideration of the defendant's entering into and performing its obligations under the Performance Guarantee. Clause 2 provided:- 29 "FCA acknowledges incurring obligations and giving rights under this agreement for valuable consideration received from Meredith. FCA irrevocably guarantees to Meredith the due performance by JGL of all the obligations, liabilities, terms and conditions, whether expressly or impliedly contained in the Building Contract on the part of JGL to be performed, observed and satisfied or which remain to be performed, observed or satisfied in connection with or arising out of the construction by JGL of the Bankstown Australian Taxation Office as at the date when an Operative Event first occurs or which arise after that date." 30 Clause 3 specified the Operative Events and, generally speaking, they were events following upon or in consequence of JGL's inability to pay its debts, the relevant one, for present purposes, being in sub-clause (g), namely the appointment of a receiver or receiver and manager to the whole or part of JGL's assets. It was not in issue that Mr M.C. Korda was appointed Receiver and Manager to all or part of JGL's assets on or about 13 September 1995. 31 The other specified Operative Events were the making of an application to the Court for or of an order by the Court for the winding up of JGL; the making of an application for or the appointment of a liquidator or provisional liquidator to JGL; JGL's entering into or resolving to enter into a scheme of arrangement or composition with any class of its creditors or otherwise dealing with them in such a way, save to reconstruct or amalgamate while solvent where the terms of doing so were approved by the plaintiff; JGL's resolving to wind itself up or otherwise dissolve itself, save for the purpose of reconstruction or amalgamation and with the consent of the plaintiff; JGL's being or stating that it was unable to pay its debts within the meaning of s.460(2) of the Corporations Law; and the appointment of a receiver, a receiver and manager, or an administrator to the whole or any part of its assets. 32 The Operative Events, accordingly, were directed to circumstances in which, at least in all probability, JGL would not be able financially to fulfil its contractual obligations to the plaintiff. Clause 4.1 provided:- "Meredith shall, if it intends to rely upon the guarantee referred to in clause 2, on each occasion give written notice to that effect to FCA, specifying: (a) the Operative Event; (b) the obligation or liability which it requires FCA to perform, observe or satisfy; and 33 (c) stipulating a date ('the commencement date') being not less than fourteen (14) days after the date of service upon FCA of the notice by which performance or satisfaction of the obligation or liability is to commence." Clauses 4.2 and 4.3 provided that the notice was to be given under the common seal of the plaintiff, and that if the obligation or liability specified in the notice was not performed, observed or satisfied within seven days after the commencement date the plaintiff:- 34 ".. shall then be entitled to take such action as it considers appropriate to enforce its rights under the guarantee referred to in clause 2." Clause 5 provided that the guarantee:- 35 ".. is a continuing security and is not discharged by any one payment". Clause 6 stated:- "6. The liabilities of FCA under this guarantee as a guarantee (sic) or principal debtor and the rights of Meredith under this guarantee are not affected by anything which might otherwise affect them at law or in equity including but not limited to one or more of the following: (a) Meredith granting time or other indulgence to, compounding or comprising with or releasing JGL;

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(b) any variation of the Building Contract." 36 It was agreed that the word "guarantee", where secondly appearing in clause 6, should read "guarantor". Although reference was made to the liabilities of the defendant as "principal debtor", there is no substantive provision imposing any such obligation on it. 37 Clause 7 provided that if any payments or transfers by JGL to the plaintiff in connection with the Building Contract were held to be void or voidable the plaintiff was entitled immediately against the defendant to the rights to which it would have been entitled under the guarantee if the payment or transfer had not occurred. 38 Initially the plaintiff did not argue that the content of the obligations undertaken by the defendant was other than that of the obligations imposed on JGL. Therefore, if the plaintiff's rights against JGL were statute barred its rights against the defendant were also statute barred. It did not seek to submit, initially, that upon a proper construction of the Performance Guarantee the defendant undertook independent obligations to fulfil those which JGL had not met after the happening of an Operative Event. 39 The first sentence of clause 2 was an acknowledgment by the defendant that it had incurred obligations and given rights. It then gave the irrevocable guarantee of the due performance by JGL of all its obligations, liabilities, terms and conditions expressly or impliedly contained in the Building Contract. The duty to fulfil those obligations only arose if JGL has to perform those obligations at the date when an Operative Event first occurred, or if the obligations arose after an Operative Event first occurred. 40 There was, accordingly, no concluded cause of action against the defendant until an Operative Event first occurred, the obligations under the Building Agreement, as varied, remaining with JGL. If clause 2 had stood alone, or, more accurately with clause 3, it would have been difficult, in my opinion, to submit that if the obligation of JGL was statute barred when the Operative Event first occurred, any obligation imposed on the defendant was not also statute barred. 41 A better approach, however, may be that no cause of action under the Performance Guarantee arose until the first occurrence of an Operative Event and, therefore, even if JGL's obligation was statute barred, the happening of the Operative Event gave rise to a cause of action against the defendant which was not. My reservation about this is that clause 2 is directed to the obligations of JGL and that clause 4 directs attention to the guarantee "referred to in clause 2". 42 The critical question is what obligations, in relation to JGL's obligations, the defendant undertook, clause 2 providing only a guarantee of the due performance by JGL of its obligations. The performance of any of obligations only arose if an Operative Event had occurred. If it had the very nature of each such event would point to the unlikelihood of JGL's being able to perform the obligation. An understanding of the nature of the defendant's obligation is also assisted by it being a building company. 43 The content of the defendant's obligations as guarantor is elaborated on in clause 4.1(b). The plaintiff's notice, the giving of which is a condition precedent to any performance of the obligations imposed by the guarantee, must specify the Operative Event, the occurrence of which is also a condition precedent, and, more significantly for present purposes, "the obligation or liability which it requires FCA to perform, observe or satisfy". Clause 4.1(c) requires the date by which "performance or satisfaction of the obligation or liability is to commence" to be stated. 44 Clause 4.3 provided for the remedies the plaintiff could take "to enforce its rights under the guarantee referred to in clause 2" if the obligation or liability specified in the plaintiff's notice was not "performed, observed or satisfied" within the specified time. 45 Against this contractual background the issue arose as to whether the obligations of the defendant were to perform the obligations of JGL in so far as there were such obligations and if JGL failed to do so, or whether, in the circumstances to which I have just referred, upon the happening of the Operative Event and the giving of the requisite notice the defendant was obliged to carry out JGL's obligations not as a performance by it of them, but as a performance by it of primary obligations which it had assumed under the Performance Guarantee.

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This point of construction was not argued initially and, as it seemed to me that it was available, I raised it with the parties on 4 October 2000. I asked to be advised whether the plaintiff wished to rely on it and, if it did, to receive submissions from both parties. This was done and I heard submissions on this point on 11 October 2000. 46 Legal Principles Applicable To Guarantees 47 As much attention was given in argument to the proper way to construe guarantees, it is useful to refer to some of the relevant authorities. Mr Young, as one might expect, relied heavily upon the decision of the High Court in Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549. At p.557 in the joint judgment, Mason ACJ, Wilson, Brennan and Dawson JJ examined the special principle, which was said to apply to the suretyship contract, namely that the surety is discharged from its obligations by the creditor's breach of that contract, so long, at any rate, as the breach materially prejudices the interests of the surety. After referring to a number of authorities, and noting at p.560 that in the United States the rule of strict construction, though applied in favour of sureties who receive no reward, is not applied to a compensated surety, i.e. one for reward, their Honours said, at p.561:- "However, the fundamental question still remains: is the rule of strict construction, derived from the equitable rule which protects the surety from any alteration in its liability, subsumed in the general principles of the law of contract so that the surety may treat itself as discharged from liability if, but only if, the breach is such as to entitle the surety at law to rescind the contract? In truth there is no difference between the equitable rule and the legal rule, as Lord Selborne LC pointed out in Re Sherry; London and County Banking Co v Terry . There, in a passage accepted by the Privy Council in National Bank of Nigeria Limited v Awolesi , his Lordship said: 48 'A surety is undoubtedly and not unjustly the object of some favour both at law and in equity, and I do not know that the rules of law and equity differ on the subject.'" Their Honours then set forth the passage which is generally applied:- 49 "At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise for the law's preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety and so the provision should be interpreted as a condition, or perhaps as an innominate term, instead of a mere warranty. If the surety is to be discharged for breach of a promissory term in the suretyship contract, the justification for the discharge must be that the creditor has failed to comply with the provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety's obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred. If on its true interpretation the term is not intended so to operate, it is not easy to understand why the surety should be discharged by its breach. Of course, in construing the contract the court is entitled to look to the general setting in which the contract has come into existence: see e.g., the discussion in Riordan Smith Line Limited v Hansen-Tangen." 50 Mr Young submitted that the Performance Guarantee and any notices given pursuant to it must be interpreted in this way. He stressed the "strictissimi juris" requirement of construction to establish the liability of the defendant. In Tricontinental Corporation v HDFI Limited (1987) 21 NSWLR 689, Kirby P, who dissented, referred to the United States authorities and texts and stated the opinion, at p.696, "that the same approach should be taken in our law to the construction of contracts of suretyship involving a corporate compensated surety such as the respondent". His Honour considered he was authorised to give effect to that opinion by the decision in Ankar. Mr Callaghan relied upon that statement, and submitted that I should follow it. However, his Honour's approach was rejected by Samuels JA at pp.706-707. His Honour noted the submission that the High Court had adopted "the United States approach" and referred at some length to the judgments in Ankar. He said, pp.707-708:-

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"I therefore find it impossible to conclude that the High Court in Ankar offers any authority to this Court to decline to apply what seems to me clearly to be settled doctrine. There are, of course, as Deane J suggested, sensible and weighty practical commercial reasons favouring retention of the present rule. It is undoubtedly true that compensated sureties offer their guarantees or financial backing for a fee and do it not as a friend in need but as a matter of business. Nevertheless, it is a business attended by considerable hazard, as recent events in Australia attest. It does not seem to me to be part of the duty of judges to take the view that because such sureties carry on business of this kind their contracts are to be construed against them, or read down, or given meanings other than the ordinary construction of the words used would entail , or so as to deprive them of protection for which they have bargained. If current tendencies to advance the limits of relief available to those who have entered into unwise agreements is to be carried into this area, it must be in consequence of statutory policy and does not seem to me to fall within the interstitial quasi-legislative competence of which the judges may on occasions take advantage." (My emphasis.) 51 Waddell AJA, who comprised the majority with Samuels JA, did not deal with this point. 52 In Pan Foods Company Importers & Distributors Pty Limited v Australia and New Zealand Banking Group Limited (2000) HCA 20, Kirby J expressed the same view as he had in Tricontinental; acknowledged that he was in the minority in that case; and re-affirmed his adherence to his previously stated opinion. The other members of the High Court did not suggest any criticism of the principles stated in Ankar or seek to distinguish between compensated and other guarantors. I was referred to this case by Counsel after I had reserved my decision. As the law presently stands the view of Kirby J has not been adopted in this country. In The Modern Contract of Guarantee (3rd Edition - 1996) the authors consider principles of construction in Chapter 5. At p.217 they quoted the essential sentence from Ankar, noting:- "There is an emphasis on resolving an ambiguity in favour of the guarantor rather than restricting the guarantor's obligation to that which 'on the strictest construction of the instrument, he must be said to have expressly undertaken'.

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"The courts are entitled to take into account the commercial context in which the guarantee is executed in interpreting the instrument and the application of this tenet of construction may also achieve the same objective of preventing corporate guarantors escaping liability on technical grounds." 53 If I may say so, with respect, I do not consider the decision in Ankar showed any inclination by the High Court to adopt the United States' approach. As Gleeson CJ said in Bond v Hong Kong Bank of Australia Limited & Ors (1991) 25 NSWLR 286 at p.293 certain provisions in a guarantee may produce "apparently harsh results". He referred to Tricontinental and continued that the language of the relevant clause was mandatory and that there was "no room for saying that near enough is good enough". 54 The Court must firstly construe the Performance Guarantee in accordance with accepted canons of construction, including, of course, the mutually known matrix of facts against the background of which it was entered into, to determine objectively what the words mean. If that exercise produces an ambiguity, that should be resolved by construing the guarantee in favour of the surety. 55 In the present case the mutually known background facts were that in 1991 the defendant, which carried on building operations, had taken over, in some way not disclosed by the evidence, JGL; that JGL had carried out the building work and claimed to be entitled to some $550,000 in progress payments; that the works had been completed and the ATO's Superintendent had issued a Final Certificate under the Pre-Commitment Agreement; that JGL was seeking payment, a variation of the Performance Security and the issue of the Final Certificate; that the plaintiff was resisting this because of its concerns as to JGL's ability to continue to perform its obligations under the Building Contract, at least; and that, in these circumstances, the Building Contract was varied and releases were given subject, inter alia, to the plaintiff's receiving the Performance Guarantee. It is unthinkable, and the contrary was not suggested, that the defendant was not aware of the terms of that Deed to which the Performance Guarantee was annexed. The granting of the Performance Guarantee for consideration was to bring about a resolution of the problems between the plaintiff and JGL by the defendant's irrevocably guaranteeing the plaintiff in terms of clauses 2 and 4. 56 However, the Guarantee could not be called upon until there was an Operative Event, the plaintiff's rights until then being solely against JGL. This, of course, makes sense of the reason why the plaintiff was seeking "comfort". It was not in issue, as I have said, that an Operative Event occurred on 13 September 1995. 57 To activate the Guarantee referred to in clause 2, after an Operative Event, the plaintiff was obliged to give written notice under its common seal to the defendant specifying the three matters set forth in clause 4.1. 58 The issues are whether "the obligation or liability which it requires FCA to perform, observe or satisfy": Clause 4.1(b), was a reference to the obligations or liabilities of JGL "contained in the Building Contract" "in connection with or arising out of the construction by JGL of the Bankstown Australian Taxation Office", or whether they ceased to be secondary or guaranteed obligations and became primary contractual obligations undertaken by the defendant; and whether they were obligations existing either as at the date when an Operative Event first occurred and obligations which arose after that date. It seems to me that the words "Building Contract" in clause 2 mean the initial Building Contract as varied by the Deed of 30 July 1993.

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(a) it identified the Operative Event as the appointment of Mr Korda; (b) it set out material under the heading "Obligations Or Liabilities With Which Fletcher Construction Is To Comply"; (c) it provided a Commencement Date and set forth what would occur if there was a failure to comply; and 60 (d) it was issued under the Common Seal of the plaintiff. 61 The essential issue is whether any of the notices correctly identified, relevantly for present purposes, the requirement that the defendant should rectify the whole of the roof, for that was the plaintiff's claim. It was not in issue that the notice of 11 October 1996 made no reference to the roof and it is only necessary to refer to it briefly as Mr Callaghan, in final submissions, did not rely on it. 62 The notice of 20 December 1995 stated that for the purposes of clause 4.1(b) of the Performance Guarantee the obligations and liabilities which the plaintiff required the defendant to perform, observe or satisfy were in relation to clauses 20, 21 and 23A.2(a) and (c) of the Building Contract, it being asserted that in respect of clause 20 JGL had failed to comply with its warranty that the design of the Works had been and would be carried out with due skill and care appropriate to the undertaking and that the design of the Works was suitable for the intended purposes of the plaintiff as referred to in Recital J. In relation to clause 21 there was an assertion that JGL had failed to comply with its obligation to carry out and complete the Works shown in the Building Documentation with a high degree of professional skill, care, competence and diligence expected of an architect and builder of first class office accommodation; and, in relation to clauses 23A.2(a) and (c), that JGL had failed to comply with its obligations to construct the Works in a proper and workmanlike manner in accordance with the Building Documentation and all statutes, by-laws, regulations, ordinances and the lawful requirements of all competent authorities. Each of these complaints was based on contractual requirements. There was no assertion that there had been a failure to take reasonable care giving rise to a tortious obligation. This portion of the notice concluded:-

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"All in respect of those defects described or referred to in Schedule A ('Defects') to this Notice." 63 The notice continued that the plaintiff required the defendant to carry out all work necessary to remedy and rectify the Defects "and otherwise to fully perform, observe and satisfy those obligations and liabilities of JGL" which remained to be performed. The author thus thought, in so far as this is relevant, that the obligations and liabilities were those of JGL. Schedule A referred to Level 6 by reference to a plan, A008/4, which was annexed to the notice and specified a point at Grid B5 by a black dot. It was asserted that the defect was water penetration to the Level 6 office ceiling. There are certain pencilled notes on this page, and perhaps on others, which were not part of the tender. The plan shows the point at which, on any reasonable interpretation of the notice, water penetration was alleged. Mr Callaghan submitted that the defect of which complaint was being made was general water penetration to the Level 6 office ceiling. However, in my opinion, the precise reference to the plan and the position on it, together with the annexing of the marked up plan showing only one leaking area, makes it apparent that the plaintiff was only complaining about the leak at the point specified. Mr Young submitted that there was no specification in the notice of the obligation or liability, which the defendant was required to perform, observe or satisfy. In my view that involves far too narrow a reading of the notice. In paragraph 2 the notice was pointing to specific provisions of the Building Contract, which were in general terms, but which made clear what the obligations of JGL were. Properly read the notice then said that there had been a failure by JGL to comply with those obligations in respect of the defects set out in Schedule A. I do not accept that this notice did not comply with clause 4.1(b) in relation to the specified defects. However, it does not avail the plaintiff in the present case because it does not specify more than one leak. Nor, so it seems, did the solicitors for the defendant think there had been non-compliance by reason of lack of specificity because, on 22 January 1996, they wrote to the then solicitors for the plaintiff, stating in the second paragraph:- 64 "In the Notice, Meredith Projects requires FCA, among other things, 'to carry out all work necessary … to fully perform, observe and satisfy those obligations and liabilities of JGL which remain to be performed, observed or satisfied in connection with or arising out of the construction by JGL of the Bankstown Australian Taxation Office … ." (My emphasis.) 65 The complaint was clearly not one about the specified defects, but the more general statement of obligations and liabilities to which reference is made. This is made clear by the use of the words "among other things", the omission from the quotation of the specified defects, and by the balance of the letter in which complaint is made that the period specified in the notice was insufficient to allow the defendant "to carry out and complete the defects detailed in the Building Defects Report dated 14 December 1995". That is Schedule A. No objection was taken to the specified defects, but to the unspecified defects, the letter concluding:- 66 "We are instructed that FCA always has endeavoured to discharge its obligations in a timely and proper manner and will continue to do so. Consequently, it would be inappropriate for Meredith Projects to engage any other person or corporation to carry out work at the building." 67 The only obligations the defendant had were those arising under the Performance Guarantee. The letter made no reference to the discharge by the defendant of JGL's obligations. 68 The problem with this notice, so far as the present proceedings are concerned, is that it does not make the general complaint about the adequacy of the waterproofing of the roof which is now made, but is confined to a very particular complaint. It was, in my opinion, a notice sufficient to have that defect rectified, but it does not support the present general allegations about waterproofing the whole roof. 69 The second notice followed the same format as the first and relied upon the same general clauses in paragraph 2. However, as I have said, it was not in issue that it contained no complaint about the roof. The notice, accordingly, was ineffective to give rise to an obligation in relation to the waterproofing of the roof. The solicitors for the defendant responded on 29 October 1996 stating, inter alia, that they had received instructions from the defendant:- ".. in relation to the work required to be performed under the Notice pursuant to the Performance Guarantee.

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This issue is now one of major concern, as previously it was thought localised areas where leaks had occurred could be repaired , but it is now obvious that a comprehensive reassessment of how the roof can be waterproofed must be considered." (My emphasis.) 73 The emphasised portion adds point to what I said about the first notice. 74 A number of objections were raised to this notice by Mr Young, including that by 6 April 1998 there were no obligations imposed on the defendant as the work had been concluded in 1991 and the limitation period to proceed against JGL had expired. Thus, if there was no obligation on JGL, there was none on the defendant. This was the initial way in which the case was fought. However, before getting to that, it is necessary to consider whether the notice specified an obligation or liability which the plaintiff required the defendant to perform. In my opinion, on a fair reading, it did. It pointed to "further leaks" and to the fact that it appeared that the membrane was failing in many areas, such that the matter was one of major concern requiring a comprehensive reassessment of how the roof could be waterproofed. Any sensible reading of these words would indicate that the plaintiff was seeking to have the roof rectified so that it did not leak. Therefore, I consider that this notice was adequate to satisfy the requirements of clause 4.1(b) in respect of an obligation or liability in contract. However, it makes no reference to any tortious liability and, even if it did, I am not satisfied that on a proper construction of clause 2 tortious liability was guaranteed. Therefore, in so far as the plaintiff may be able to rely, as against JGL, on concurrent tortious liability, I do not consider that it can do so against the defendant. I do not consider that was a liability the defendant undertook under the Performance Guarantee. Whether the notice entitles the plaintiff to succeed will depend on a proper construction of the Performance Guarantee and other defences raised. I should also note that Mr Young submitted, by reference to the principle stated in Ankar, that the terms of clause 4.1(b), in regard to the giving of notice based on breach of contractual obligations, were not met. I do not agree because, in my opinion, a proper construction of the notice does not give rise to an ambiguity in regard to contractual obligations. On this occasion Mr Davey responded asserting that the defendant did not agree that many of the defects listed, if any, pre-dated practical completion, raising some other points, and concluding:-

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"Fletcher Construction Australia Limited will recommence works prior to 23 April 1998 and will continue in accordance with our attached comments." The attached comments related to the complaints made in the notice and, in relation to Level 6, stated:- "Water penetration to Level 6 office ceiling. 75 This will be further attended to by Fletcher. The roof membrane has been repaired. Topping has not occurred as we are awaiting Meredith's approval to do so. We believe Jennings fulfilled their contractual obligation in providing to Meredith the required warranty." On 25 May 1998 the present solicitors for the plaintiff wrote to the defendant in relation to the various defects and, in respect of the water penetration through the roof, said:- 76 "There is clear evidence that water penetration at the Level 6 ceiling is continuing. We refer you again to the Memorandum from the Australian Taxation Office attached and an earlier Memorandum dated 18 May, 1998 also attached. Despite this and repeated calls for this defect to be remedied, in the Response you state that 'the roof membrane has been repaired'. This item is excluded without explanation from both SWIJ Reports. This is an unequivocal statement that you do not propose to perform your Obligations in respect of this item. Your proposal in the Response to re-fill the topping slab is a clear indication that you do not propose to do any further work on this continuing problem." On 1 June 1998 Mr Davey responded. He advised that the defendant was prepared to carry out all the works contained in the report prepared by the plaintiff's expert, Mr McMillan, dated 22 May 1998, "with the exception of the membrane work to the roof as detailed in Item 7 of the report", and that the offer did not accept liability for all the requested works but was given "in good faith". In relation to Level 6 he wrote:- 77 "Please state what you believe our obligations are. Jennings fulfilled its obligation in providing your client with a warranty. If the problem is now one of material failure as is stated by McMillan then your client should pursue Dunlop, as they provided the material warranty to your client. We have always been willing to assist in this regard." The letter concluded:-

[34]

"Notwithstanding the above, we reiterate that we are prepared to carry out the works recommended, to your engineer's requirements, with the exception of the roof work ." (My emphasis.) 78 The Issues Fought 79 It was not in issue that the roof leaked in a number of places. The issues finally propounded for decision were whether, on a proper construction of the Performance Guarantee and in the events which occurred, the defendant was liable to make good the roof; secondly, whether the Limitation Act precluded the plaintiff's recovering; thirdly, whether the Limitation Act defences were overcome either because the Articles of Agreement were a deed, thus increasing the time limit to twelve years, or by waiver, estoppel or acquiescence; fourthly, if the defendant was liable, the extent to which the roof leaked; and, fifthly, (and this is closely allied to the fourth issue and also assumed liability), whether the rectification suggested by Mr McMillan should be adopted at an agreed cost of $385,000 together with some expenses, or whether that suggested by the defendant's expert, Mr Mursa, should be undertaken at an agreed cost of $66,000. These figures were, very sensibly if I may say so with respect, agreed by the parties' quantity surveyors in conclave. The issues for me are whether the defendant is liable and, if it is, in which amount. This co-operation, together with the reduction of the various building issues to the one concerning the roof by the experts consulting, shows the great advantage which may be derived from following the rule of requiring experts to confer. The pleadings did not raise an allegation that JGL was negligent, such as to give rise to concurrent contractual and tortious liabilities, but some of Mr Callaghan's submissions did. He also submitted that liability in tort did not arise until April 1993. If that is correct the third notice was given and the proceedings were commenced within the period allowed by s.14(1)(b) of the Limitation Act. Important qualifications to that statement are that I do not consider, for the reasons I have given, that that notice relied on any tortious breach or that clause 2, properly construed, covered a tortious breach. Although these matters were raised by Mr Callaghan, Mr Young did not respond to them, nor did he subsequently agree, correctly in my view, that the case had been fought on this basis. To avoid doubt I had the matter re-mentioned and, on 7 June 2000, the plaintiff sought leave to amend the Summons by adding the following paragraph:- "5A. Further, Jennings owed to the plaintiff a duty to perform its obligations in respect of the design and construction of the building situated at 2-14 Meredith Street, Bankstown, in the State of New South Wales, with reasonable care and skill. PARTICULARS 80 The duty arose having regard to the Design and Construct Contract." Mr Young opposed the application, which was necessarily made under Part 20 rule 5 on the assumption that the limitation period had expired, or on the assumptions that it was held that the Articles of Agreement were not a deed and that the defendant was not otherwise entitled to rely on the expiry of the limitation period. It seemed to me that as the claim for relief arose out of the same or substantially the same facts as those pleaded originally: (rule 4(5)), the proper course was to allow the plaintiff to bring forward a Notice of Motion for leave to amend when these various issues could be argued. I indicated that rather than give a separate judgment on that point I would, in all probability, deal with the matter in this judgment. Unfortunately, because I was due to commence long leave on 10 June 2000, the hearing of the Notice of Motion, and hence the delivery of this judgment, has been delayed. I referred to these matters in a separate judgment, which I delivered on 7 June 2000 and which should be read together with these reasons. I have set out in that judgment the concession that the tortious duty was not raised. I gave directions for the filing of the Notice of Motion and evidence in support. A Notice of Motion was filed on 30 June 2000 seeking the following relief:- "1. That the Plaintiff be granted leave to amend the summons filed in these proceedings as follows: (a) by adding a new paragraph 5A in the following terms: "Further, Jennings owed to the plaintiff a duty to perform its obligations in respect of the design and construction of the building situated at 2-14 Meredith Street, Bankstown in the State of New South Wales with due care and skill and in a proper and workmanlike manner.

[38]

Unfortunately the delivery of judgment has been delayed further by my raising the question of the proper construction of the Performance Guarantee. 82 The Pleadings 83 The plaintiff filed its Summons on 3 June 1998. It pleaded a number of matters to which I have referred and which were not in issue, including the Performance Guarantee; specified a number of defects which, save for the roof, are no longer of concern; and, in paragraph 10, relied upon four notices said to have been given pursuant to clause 4.1(b), being the three to which I have referred and the letter from the present solicitors for the plaintiff dated 25 May 1998. In the end Mr Callaghan placed no reliance on the second notice and the letter. The pleading continued that the defendant had failed to comply with the notices by reason of which the plaintiff suffered loss and damage. The claims pleaded all proceeded on the basis that JGL was in breach of its contractual duty to the plaintiff. There was no allegation that JGL was in breach of a concurrent duty in tort to take reasonable care. The plaintiff, having been given every opportunity to raise this issue, has decided not to pursue it in the circumstances to which I have referred. The pleading also raised an allegation of a breach of a duty of care by the defendant in relation to the performance of its obligations under the Performance Guarantee. As I have said, the only notice, which, in my opinion, can support the present proceedings is that of 6 April 1998. Whilst it meets the requirements of clause 4.1(b) in identifying the obligation and liability, it is subject to other defences. The defendant filed a Defence on 17 July 1998, an Amended Defence on 22 July 1999, and a Further Amended Defence on 27 October 1999. The Defence did not raise the limitation issue, but the Amended and Further Amended Defences did. Thus, the plaintiff was on notice for many months before the hearing of the limitation issue. It was the Further Amended Defence upon which reliance was placed and, under the heading "Issues Likely to Arise", it stated:- "1. What was the extent of the defendant's obligations under the Performance Guarantee. 2. The nature and extent of defects to the work performed under the Design and Construct Contract entered into by the plaintiff and JGL. Whether the defendant has performed its obligations under the Performance Guarantee. 84 3. As to the validity and/or applicability of the four purported notices relied on by the plaintiff under the Performance Guarantee. As to the consequences that flow from the rejection by the plaintiff of the offer contained in the letter from the defendant to the plaintiff's solicitor of 1 June 1998." The substantive nature of the defences based on the Performance Guarantee appear from paragraph 13(a), which stated:- "It is admitted that a purported notice of 6 April 1998 was served, but it is denied that it was a valid notice under the Performance Guarantee; (i) Because there was no demand on JGL to perform the said obligations and liabilities; (ii) (Further and in the alternative) because the Performance Guarantee allowed one notice to be given in relation to obligations and liabilities and this was in substance a third notice; (iii) (Further and in the alternative) the purported obligations and liabilities to which it referred were no longer maintainable against JGL being time barred pursuant to the Limitation Act 1969 and accordingly were no longer obligations or liabilities which the Defendant could be required to perform, observe or satisfy under the Performance Guarantee. 85 Further or in the alternative it is not admitted that the notice was a notice in respect of the defects pleaded in C9." 86 In relation to the notice of 14 December 1995 the defence raised in paragraph 13(a)(i) was repeated. It was also stated that further or in the alternative it was not admitted that the notice was in respect of the defects pleaded in C9, and that in the alternative such notice, and compliance therewith, was waived by the issuance by the plaintiff of its further notices. I have given my reasons for concluding that this notice could not support the present proceedings. 87 In relation to the notice of 11 October 1996 the defences raised in paragraph 13(a)(i) and (ii) were repeated. It was also pleaded that the defendant repeated paragraph 13(a)(iii) and said that there were no longer obligations or liabilities, which it could be required to perform, observe or satisfy under the Performance Guarantee. The plaintiff did not rely on this notice. 88 As no reliance was ultimately placed on the letter of 25 May 1998 I do not propose to refer to the defence to that. In paragraph 14.1 it was pleaded:- "Further or in the alternative and in answer to paragraphs C10 and C11 the defendant says: (a) the Performance Guarantee was on its proper construction a guarantee to perform those construction obligations of JGL which remained unperformed by JGL at the date of the first operative event or thereafter. It was not a guarantee to remedy past breaches of contract by JGL (whether being defective building or unsuitable design) in its previous performance of those obligations; 89 (b) the defects identified in C9 and in each of the Notices pleaded in C10 (and each of them) did not fall within the scope of the guarantee as pleaded in (a) above and accordingly the defendant had and has no liability under the Performance Guarantee in respect of them." The pleading then turned to the offer made by the defendant in its letter of 1 June 1998 to perform all work, save for the roof membrane work, to which the plaintiff responded by commencing these proceedings:-

[41]

It was further pleaded that the defendant filed a Defence on 17 July 1998 which did not dispute the validity of the notices. 93 The Defences Raised 94 It is convenient to consider each of the defences raised to the alleged liability under the Performance Guarantee. In his written overview Mr Young submitted that clause 2 should be read in the context that practical completion occurred on 28 April 1992, subject to a list of defects; that subsequently on 28 April 1993 Mr Farrell prepared a defects list together with comments on whether they were rectified; and that there were further communications between the parties relating to notified defects. He further submitted that the matrix of facts against the background of which the Performance Guarantee is to be construed is one of debate as to whether JGL was entitled to final payment or whether defects notified within the defects liability period had been rectified, and that it was these outstanding alleged defects that were the subject of the guarantee, a submission based upon the words indicating futurity in clause 2 "to be performed .. or which remain to be performed .."; whereas the plaintiff seemed to construe the Performance Guarantee as one which relates to any defect in design, workmanship or materials arising at any time. This, so the submission ran, was not permissible because of the principles established in Ankar. I do not understand those principles to say that because there can be an argument about what the words in a guarantee mean, they should be construed favourably to the surety. The Ankar principle is applicable if, after performing the usual construction exercises, the Court is left with an ambiguity or, perhaps, the type of situation to which Gibbs J referred in his oft-quoted passage in Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 at p.109. 95 Mr Callaghan submitted that upon its proper construction the second sentence of clause 2 refers to any obligation, liability, term and condition in the Building Contract, which was or remained to be performed by JGL; noted that condition 24.12(c) contemplated action by the plaintiff against JGL in respect of any failure on its part to duly perform its obligations under the contract with respect to the design and construction of the works; and submitted that condition 24.12(c) was broadly drafted and permitted a suit by the plaintiff for defective work, notwithstanding the issuance of a Final Certificate. I agree with that, but I have noted a restriction on at least the temporal range of the condition. His written submission continued that the objective intention of the parties was to put the defendant in the position of JGL with respect to any continuing obligations or liabilities, which it may have as at the date of the Operative Event or thereafter in connection with or arising out of the construction of the building, and that had the parties' intention been to limit the defendant's obligations to "prospective" matters a more limited form of words in clause 2 would have been used, which reflected only the outstanding matters specified in the Deed of Release and Variation. 96 It seems to me that the second sentence of clause 2 relates to any contractual obligation, liability, term or condition to be performed, observed and satisfied, or which remains to be performed, observed or satisfied either when an Operative Event first occurs or which arises thereafter. Those words mean, in my opinion, that in so far as JGL had not met its contractual obligations, liabilities, terms and conditions, they were obligations, liabilities, terms and conditions on its part to be performed, observed and satisfied. If there was any doubt about this the words "which remain to be .." clarify the position, because they refer the position back to obligations, liabilities, terms and conditions not performed. An "Operative Event" could have occurred the day after the Performance Guarantee was entered into, in which case, so it seems to me, the Performance Guarantee would operate on any contractual obligation, liability, term or condition which then either had not been performed or, because it should have been performed at that date, remained to be performed. 97 In my opinion, the proper construction of the second sentence is that the guarantee attaches to obligations, liabilities, terms or conditions which JGL had to perform, observe and satisfy by virtue of the Building Contract at any time, and which obligations, liabilities, terms and conditions had not been performed when an Operative Event first occurred, or which arose after the Operative Event occurred. The remaining question is the extent of that obligation so far as the defendant is concerned. 98 Accordingly, I reject the submission that one should read the guarantee clause as relating only to such obligations which might fall on JGL after an Operative Event first occurs. In further support of that conclusion the words ".. as at the date when .." indicate quite clearly, in my view, that there may be a subsisting default prior to the Operative Event, i.e. that the guarantee related to a default subsisting before the Operative Event and, of course, until there was an Operative Event the Performance Guarantee could not be invoked. In the result, I consider that clause 2 operated both retrospectively and prospectively. In so deciding, I do not discern any ambiguity which requires a different conclusion.

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The first specific defence raised is that no demand was made on JGL to perform the contractual obligations and liabilities. In my view this must fail. First, there is no requirement in the Performance Guarantee for the plaintiff to call on JGL to perform. Secondly, one would be slow to infer that that should happen as each Operative Event appears to be predicated on the basis that JGL may well not be able to meet any such demand. Thirdly, clause 4.1 expressly provides that the plaintiff shall, if it intends to rely upon the Performance Guarantee, give the specified written notice to the defendant. There is no suggestion that a condition precedent to calling upon the defendant is the giving of notice to JGL; rather the conditions for calling upon the Performance Guarantee are the occurrence of an Operative Event and the giving of the specified notice to the defendant. Fourthly, clause 6(a) provides that the liabilities of the defendant and the rights of the plaintiff under the Performance Guarantee are not affected, inter alia, by the plaintiff's releasing JGL. If the plaintiff released JGL, as to which I appreciate there is no evidence and I shall assume did not happen, there would be no legal reason justifying its calling on JGL prior to making a claim upon the defendant. I use this as an aid to the construction I prefer. Fifthly, in The Modern Contract Of Guarantee (Third Edition) at p.483 the authors state:- 99 "The creditor is under no obligation to notify the principal debtor or the guarantor of the principal's default, unless such notification is required by the terms of the guarantee. The rationale for this rule is that the guarantor, when undertaking the obligation, must realise that there is a risk that the principal will not perform and the burden is, therefore, placed upon the guarantor to ascertain when the default has occurred. Another justification proffered by the courts is that it is the guarantor's responsibility to ensure that the debtor performs the principal obligation, whether it is the payment of a debt or the performance of a duty or undertaking." In Sunbird Plaza Pty Limited v Maloney (1988) 166 CLR 245 at p.255, Mason CJ said:-

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"My own view of the matter accords with that expressed by Lord Reid in Moschi [at 344-5] where his Lordship rejected the notion that there was a common rule applicable to all guarantees and acknowledged that the parties are at liberty to make such agreements as they choose. There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor's obligation to pay arises on the debtor's failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his." 101 In my respectful opinion the second sentence of clause 2 falls within the last sentence of the passage I have just quoted. 102 In these circumstances I do not consider that a demand on JGL was a condition precedent to the enforcement by the plaintiff of its rights under the Performance Guarantee. 103 The second defence was that the Performance Guarantee allowed only one notice to be given in relation to the obligations and liabilities, that being, obviously enough, the first notice. 104 In his written outline of submissions Mr Young contended that the words "on each occasion" in clause 4.1 referred back to clause 3, thus meaning "on each occasion that an Operative Event occurs". This, if I may say so with respect, is a somewhat strained construction and the mandatory word "shall", which clearly refers to the intention to rely upon the Performance Guarantee, makes it clear that clause 4.1 is saying that the plaintiff shall on each occasion that it intends to so rely give written notice to that effect to the defendant specifying various matters. There must, of course, be an Operative Event, but there is no reason why it cannot be the same one. Indeed clause 2 contemplates that there may be breaches at various times, e.g. either when an Operative Event first occurs or after that date. Accordingly, it is, in my opinion, open to the plaintiff to give a notice if there is a breach when the Operative Event first occurs and, subsequently, if a further breach or breaches occurs or occur "after that date" to give another notice or other notices. In my opinion that is the proper reading of the words "on each occasion", and it is strongly reinforced by clause 5, which contemplates that there may be more than one payment, which, in itself, suggests that there may be more than one notice. 105 Nor does Mr Young's submission that the notice given must specify the precise obligation or liability sit easily with the giving of only one notice. For all these reasons, I reject this submission. 106 Mr Young submitted that none of the notices attached the contractual liability said to arise in the present case. For the reasons I have given I do not consider that the first notice related to the whole of the roof, which is the matter now in issue, and it was conceded that the second did not refer to the roof at all. Therefore, the plaintiff must rely on the third notice. The first issue to which that gives rise is whether, on its proper construction, that notice specified the obligation or liability which the plaintiff required the defendant to perform. In my opinion, for the reasons I have given, it did. 107 The next question is the nature of the obligations the defendant undertook under the Performance Guarantee. The plaintiff, ultimately, submitted that it was a primary obligation. The defendant responded that it was a secondary obligation, i.e. one dependent on JGL's being under an obligation. It further submitted that in so far as there were any doubts the principles in Ankar demanded that they be resolved in its favour. 108 The primary contractual obligations were, undoubtedly, on JGL. If it did not fulfil them and an Operative Event occurred and the requisite notice was given obligations fell on the defendant. The issue is what they were. 109 As I have said, but for clause 4.1(b) there is no doubt that the obligation was secondary, i.e. that it was the performance of JGL's obligations in so far as they were still enforceable. Clause 4.1(b) states that there is an obligation or liability which the defendant is required to perform. Against the background that the happening of an Operative Event would probably preclude JGL's performance and of the defendant's being a builder, I do not think, viewed in the light of the primary guarantee in clause 2, clause 4.1(b) creates primary rights in the defendant. Admittedly the rights to require performance by the defendant would only arise when the Operative Event occurred and the plaintiff complied with clause 4.1(b), but such rights would, in my opinion, only extend to then subsisting obligations of JGL enforceable against it. Accordingly, I consider that if the rights against JGL were statute barred when clause 4.1(b) was activated, the defendant is entitled to rely on that in defence of a claim under the Performance Guarantee. 110 Mr Callaghan sought to weave into his submissions the effect of clause 5.3. He submitted that it imposed a new obligation on JGL to rectify the roof membrane I do not agree. It imposed a potential liability in that regard if the requirements of clause 5.3 were not, which they were not. The difference between clauses 5.1 and 5.2, on the one hand, and clause 5.3, on the other, is stark. The submission continued that as the Performance Guarantee extended to include the additional obligations contained in clause 5.3, these obligations did not arise until, at the earliest, 30 July 1993. I consider this submission fails at the outset because the requirements of clause 5.3 were never activated by notice to JGL. 111 Mr Callaghan also submitted that the parties were aware that the roof defect had not been rectified when the Performance Guarantee was executed. The document does not support this. The accepted defects were specified. In respect of the roof membrane a regime was put in place to have that done, if it became necessary. 112 Mr Young submitted that it was not open to the plaintiff to raise these points. First, he said that the only operative notice did not rely on clause 5.3, a submission which is undoubtedly correct. Secondly, he said the point had never been pleaded, which is also correct and no leave to amend the pleadings to accommodate it was sought. Thirdly, no notice had been given to JGL. 113 Finally, Mr Callaghan submitted that the defendant "stepped into the shoes" of JGL and "assumed the role of principal contractor". To some extent the first submission is correct. But that does not avail the plaintiff as JGL could rely on the limitation points.

[46]

I am not, as a matter of construction, satisfied, for the reasons I have sought to explain, that the defendant assumed a primary obligation. Further, there are well recognised clauses for guarantees, which can make a guarantor a principal obligor. They were not used in the Performance Guarantee. The closest the Performance Guarantee came to that was in clause 6. It is poorly drafted but, in any event assumes, in my opinion, some other creation of liability as a "principal debtor", which does not appear. 114 The Limitation Act Defence 115 The question which then arises is whether the Limitation Act defence based on s.14(1)(a) is applicable. It was not in issue that the roof work, which is now the subject of complaint, was completed by the end of November 1991. That work, on the basis of the leaking which occurred, was carried out in breach of the Building Contract and, particularly, conditions 20 and/or 21. These conditions and clauses 1(a) and (b) imposed the contractual obligations of care and skill on JGL. In the light of them it was not necessary to imply any such contractual terms. Their breach, relevantly for present purposes, occurred by the date to which I have referred and any contractual cause of action in relation to those breaches was time barred, in my opinion, by the end of November 1997, by which date the third notice had not been given and the proceedings had not been commenced. 116 In view of the way in which the case was pleaded and conducted it becomes unnecessary to consider the interesting question of the existence of concurrent liability in contract and tort: Hawkins v Clayton & Ors (1988) 164 CLR 539; Pacification Associates Inc & Anor v Baxter & Ors [1990] 1 QB 993; R.W. Miller & Co Pty Limited v Krupp (Australia) Pty Limited (Giles J - 9 June 1992 - unreported); Henderson & Ors v Merrett Syndicate Limited & Ors [1995] 2 AC 145; Bryan v Maloney (1995) 182 CLR 609 and Astley v Austrust Limited (1999) 197 CLR. Even if the plaintiff had sought to maintain a liability in tort the Limitation Act would have posed great difficulty. It was held in Pirelli General Cable Works Limited v Oscar Faber & Partners [1983] 2 AC 1 that the limitation period commenced to run in tort when the work, which subsequently became defective and for which the cost of rectification was being sought, was carried out, rather than when it became discoverable or should, with reasonable diligence, have been discovered. In reliance on that case and also Hawkins v Clayton, Mr Callaghan submitted:-

[51]

Section 51A of the Conveyancing Act provides in favour of a purchaser in good faith that a deed shall be deemed to have been duly executed by a corporation aggregate if its seal is affixed in the manner therein stated. In the present case the Articles of Agreement assert that the common seal of the plaintiff was affixed in accordance with its articles of association in the presence of two persons said to be authorised persons. This would seem to comply with the requirements of s.51A(6), so far as execution is concerned, which provides:- "Notwithstanding anything contained in this section, any mode of execution or attestation authorised by law or by practice, or by the Act, charter, memorandum or articles, deed of settlement, or other instrument constituting the corporation or regulating the affairs thereof, shall (in addition to the modes authorised by this section) be as effectual as if this section had not been passed." 129 But it does not, in itself, enable the plaintiff to establish that the document is a deed. Rather it provides for a method of execution, which will be sufficient, if the document is otherwise a deed. 130 It is clear that a document is not necessarily a deed merely because it is described as such, and that an agreement may be a deed even though it is stated to be an agreement. It is also clear that merely because a document is executed by a company under its common seal, it does not thereby become a deed. 131 There have been a number of cases in which Courts have considered whether a document should be construed as a deed. 132 Before passing to them, however, it is necessary to pay close attention to the terms of the document. It is headed "Articles of Agreement". This, on its own, points against its being a deed. It then states that the parties are the plaintiff and JGL, notwithstanding that Meredith Properties Pty Limited and Mrs Rae Edwina Cottle have executed the document. The purpose of their execution would seem to have been because they charged the site on which the works were to be erected with the due payment to JGL of all moneys that may become payable to it under the Building Contract or otherwise arising from carrying out the project: Condition 9.1. 133 It has a series of recitals prefaced by the word "whereas". Whilst recitals are a feature of most deeds, they are also used in agreements. In so far as the recitals refer to the agreement, they do so by reference to the words "the Articles of Agreement", "the Contract" and "this contract". The testatum stated:-

[54]

The absence of any reference to "seals" adds point to the construction that the document was intended as an agreement under hand and not as a deed, although the words "IN WITNESS" are consistent with a deed. However, as I have said, they did not introduce the operative words. 137 One must have regard to the attestation clauses. Indeed but for that of JGL there would, in my opinion, be no basis for asserting that this document is a deed. Meredith Properties Pty Limited and Mrs Cottle were not parties to the document, although as they were giving the charge to which I have referred, I think they should have been. Thus, their method of execution must be taken into account. 138 JGL executed the document by signing, sealing and delivering it, and acknowledged that it was executing "this deed". The order in which the parties executed the document is not stated. The execution by the plaintiff would be sufficient for the execution of a deed, although that method of execution does not necessarily mean the document is a deed. If the plaintiff executed the document before JGL, it is arguable that JGL accepted that the execution was of a deed, such acceptance appearing from its method of execution and acknowledgment that the document was a deed. Alternatively, if JGL executed the document before the plaintiff, the inference is open that the plaintiff accepted that it was executing the document as a deed. One strange feature is that the attestation clauses, in so far as they were typed, appear to have been typed when the document was prepared. One is left to ponder why a different method of attestation was provided for the plaintiff and JGL and, perhaps more significantly between JGL and Mrs Cottle. In Electricity Meter Manufacturing Company Limited v Manufacturers' Products Pty Limited (1930) 30 SR (NSW) 422 the question was whether an instrument was a deed. It was submitted it was because it bore the common seals of the companies, the affixing of which was authenticated in the way ordinarily provided for in their Articles of Association. These submissions were rejected, Street CJ saying, at p.425:- 139 "It is true that, in addition to the signatures of those who signed on behalf of the contracting companies, something in the nature of a seal was impressed upon the paper, but that standing alone is not sufficient. The document is described as an agreement, and it does not purport to have been either sealed or delivered by the parties." His Honour then cited from Xenos v Wickham (LR) 2HL 296 at p.312:-

[57]

"The question of fact is, I think, this: Was the policy really in fact intended by both sides to be finally executed and binding from the time when the directors of the Defendant's company affixed their seals to it, and left it in their office; or was it, in fact, intended that the assured or their brokers should exercise a subsequent discretion as to whether they would accept it or not. If I thought that the parties did not in fact intend it to be then finally binding, I do not think there would be any magic in the law to make it binding contrary to their intention; but I submit to your Lordships that the statements in the case as to what is stated to be 'always' the practice, and the statements there as to what was done in this particular case, show that the intention of both parties was, that the policy, when drawn up by the company in conformity with the instructions in the advice sent in by the broker, should be finally binding as soon as executed by the officers of the company. It was not intended by either side that anything more should be done, but that the policy from that time should be binding, and should lie in the company's office as the property of the assured till sent for by them, and then be handed over to their messenger." His Lordship continued that on the assumption that that was the intention, the question of law arose as to whether the policy could, in law, be operative before the insurer parted with physical possession of the deed. At p.312 he said:- 143 "I can, on this part of the case, do little more than state to your Lordships my opinion, that no particular technical form of words or acts is necessary to render an instrument the deed of the party sealing it. The mere affixing the seal does not render it a deed; but as soon as there are acts or words sufficient to show that it is intended by the party to be executed as his deed presently binding on him, it is sufficient. The most apt and expressive mode of indicating such an intention is to hand it over, saying: 'I deliver this as my deed'; but any other words or acts that sufficiently show that it was intended to be finally executed will do as well. And it is clear on the authorities, as well as the reason of the thing, that the deed is binding on the obligor before it comes into the custody of the obligee, nay, before he even knows of it; though of course if he has not previously assented to the making of the deed, the obligee may refuse it." In Re Wilson's Settlements, Gibbs & Anor v Anderson & Ors [1972] NZLR 13 consideration was given to whether a document, described as an agreement, constituted a deed. That case, so far as the ultimate conclusion that the document described as "an agreement" was a deed, was assisted by the fact that it was executed conformably with s.4 of the New Zealand Property Law Act 1952. Quilliam J considered various aspects of the document in deciding whether it was an agreement or a deed and, at pp.23-24, said:- 144 "On a consideration of the document as a whole I can see nothing in the wording to lead firmly to the view that only an agreement was intended. I think the wording is sufficiently formal to suggest that the creation of binding covenants was the more likely intention." It is, if I may say so with respect, not clear to me why such a result, i.e. the creation of binding covenants, cannot come from an agreement under hand, unless it be because of the technical meaning of "covenant". At p.24, his Honour continued:-

[67]

'THE COMMON SEAL OF HOOKER ) INDUSTRIAL DEVELOPMENTS PTY ) LIMITED was hereunto affixed ) by authority of the Directors ) and in the presence of: )'" 153 His Honour appears to have been satisfied that the documents, although not called "deeds", had that character and that this method of execution was sufficient to bring about that result. However, each party had executed the document in the same way. 154 Although the documents were not expressed to be delivered, the plaintiff submitted that, notwithstanding that exchange never took place, the trustees were bound by the terms of the two deeds which they executed. This was the principal issue. 155 His Honour referred to the plaintiff's reliance upon the decision in Beesly v Hallwood Estates Limited [1961] Ch 105 in which the trial Judge had found that the defendants, by sealing the lease, intended to and did deliver it as their deed intended to bind them conditionally only upon the plaintiff's executing a counterpart, but subject to no other condition. Harman LJ was of the view that there was a delivery in escrow, conditional upon the plaintiff's executing a counterpart. Lord Evershed MR said:- 156 "As Harman LJ has pointed out, there is an important distinction in this respect between an instrument in writing, which may be executed conditionally and a deed. For in the case of the former, until the condition is performed, there is nothing at all. The position is not the same in the case of an instrument under seal executed and delivered, for in the latter case, as pointed out in the passage which Harman LJ has cited in Xenos v Wickham, when the time has arrived or the condition has been performed the delivery becomes absolute and the maker of the deed is absolutely bound by it whether he has parted with its possession or not." (My emphasis.) Helsham CJinEq acknowledged that execution, prima facie, imported delivery, but he distinguished Beesly on the basis that he was concerned with a conveyancing transaction in which the parties intended to adopt, and thought they were adopting, ordinary conveyancing procedures that involved exchange of documents. His Honour distinguished the situation, at p.118, thus:- 157 "Delivery of a deed is the act by which effect is given to the deed, and is essential to its operation as a deed. It was found as a fact by the Judge at first instance in Beesly's case, and accepted on appeal, that the deed in question there had been delivered by the lessor, albeit in escrow, the condition of the escrow being that the lessee executed and handed over the counterpart. As a deed, once delivered, cannot be recalled, it only remained for the lessee to execute the counterpart and demonstrate a willingness to hand it over, for the result to follow that the lessor became absolutely bound by the deed which it had executed." 158 Subsequently his Honour stated that whether there was delivery is a matter of fact and depends upon intention. He noted the passage from Beesly that "prima facie sealing imports delivery unless the company indicates a contrary intention or such an intention can be implied". However, it is also clear that whilst that may be the prima facie position a duly executed deed does not necessarily bind the grantor as soon as it is sealed, it being necessary for the grantor to indicate by words or conduct an intention that the deed be binding on him. At p.119 his Honour said:-

[73]

Subsequently, at the same page, he continued:- 163 "A corporation ought not to have a deed attributed to it merely because it executes an agreement under its common seal. The better view appears to be that even a contractual document made under seal is not properly to be regarded as a deed unless the seal has been affixed with the intention that the instrument should operate as a deed: Elphinstone, Introduction to Conveyancing, 7th Edition, pp.52-3; and see for example, Domb v Owler [1924] NZLR 532, at p.537, per Salmond J. Given such an intention, the further intention to complete the execution by delivery as a presently binding deed may be more or less readily inferred according to the circumstances. This view accommodates the decisions on which counsel for the Comptroller relied; and its validity is borne by the judgment of Helsham CJinEq in Hooker Industrial .. ." (My emphasis.) On appeal, the judgments of the Full Court commencing at p.345, his Honour's decision was upheld. Murphy J, with whom Gobbo and Southwell JJ agreed, said, at p.347:- "I agree with Tadgell J's conclusion. In my opinion, the supplemental loan agreement is not a deed, and consequently is not a bond or covenant. It is not expressed to be a deed, in sharp contrast to the debenture executed on the same day as the original agreement between the same parties as those who executed the supplemental loan agreement. It is not expressed to be signed sealed and delivered. The solemnity attaching to the making of a deed as distinct from an agreement is not to be ignored. Manton v Parabolic Pty Limited (1985) 2 NSWLR 361, at pp.367-9, per Young J. The seal of the executing corporations is stated to be affixed "in accordance with the articles of association", again pointing to a requirement, no doubt in the articles, that in order to give a written agreement into which the company enters binding legal efficacy, it must be sealed with the common seal which is to be affixed in the presence of a director and the secretary of the company. All of these matters would, in my view, support an inference that the agreement was not intended to be a deed, and is in fact not a deed. … 164 The agreement here was not described as a deed, as it was in the Ansett case, and the surrounding circumstances, such as the contrasting words of the debenture deed, with which the agreement is intimately connected, militate against a conclusion that the agreement was intended as a deed. There are no 'actual words' by the parties sufficient to show that the mere sealing of the agreement by the corporate bodies was alone intended by the parties to amount to execution of the agreement as a deed: see Xenos v Wickham … at p.312, per Blackburn J." 165 In Backstop Nominees Pty Limited v Goscor Pty Limited & Ors [1990] VR 468 Tadgell J again considered whether a document. described as an "agreement" was an agreement under hand or a deed. He considered it was a deed. It was executed by each of the corporate parties under common seal and signed by each of the natural persons beside a sealing clause appropriate to a deed. At p.470, his Honour said:- 166 "The defendants called no evidence but their counsel made two essential points. The first point, in logical order, was that the instrument was properly to be regarded merely as an agreement and not as a deed and that there was no consideration expressed or proved. I think there is nothing in this point. It is clear law that no particular technical form of words or acts is necessary to render an instrument the deed of the party sealing it: Xenos v Wickham … at p.312, per Blackburn J. The intention expressed or appropriately to be inferred, with which the instrument was executed and thereafter dealt with is of cardinal significance. I should not regard the fact here that the five corporate parties executed the instrument under their common seals as being of particular import by itself. That, alone, is equivocal. I refer without elaboration to what I said at first instance, and to what the Full Court said, in Comptroller of Stamps v Associated Broadcasting Services Limited [1990] VR 335. The added fact, however, that the two natural parties executed the instrument as for a deed at least suggests that the corporations did so. Moreover, it appears that the additional parties who were natural persons attested the affixing of the seal of each of Goscor Pty Ltd and the additional parties who were corporations. In the circumstances I should think it in the highest degree unlikely that all the defendants did not have the same intention as to the effect which the instrument should have upon its execution. To this are to be added the facts that the instrument was executed for the purpose of embodying terms of settlement of litigation, presumably intended to be effective notwithstanding the absence of expressed consideration, that the additional parties intended to bind themselves to guarantee the obligation of Goscor Pty Ltd and, as was again common ground, that counterparts of the instrument were exchanged. In the circumstances the intention of the parties to seal and deliver the instrument as a deed is readily to be inferred and I do so infer. My conclusion, therefore, is that the defendants' first point fails." 167 His Honour's reasoning, if I may say so with respect, is particularly apposite in the present case. Whilst, as I have said, the method of execution by the plaintiff is not determinative or, to use his Honour's words, "of particular import by itself" and "equivocal", there was in that case, as in the present case, the added fact that other parties had executed the instrument "as for a deed". From that his Honour was prepared to infer that the corporations did also. In the present case the execution by the plaintiff and Meredith Properties Pty Limited was "equivocal". Mrs Cottle certainly did not sign the document as a deed. The defendant did. In Dean and Westham Holdings Pty Limited v Lloyd [1990] 3 WAR 235 the Full Court of the Supreme Court of Western Australia had to consider a document which was in the form of an agreement. Malcolm CJ agreed with the reasons of Ipp J in concluding that the document constituted a deed. The other member of the Court, Wallace J, came to the same conclusion for his own reasons. The document was described as an agreement. The testatum stated "witnesseth" and the testamonium was:- 168 "IN WITNESS WHEREOF the parties hereto have set their hands the day hereinbefore mentioned". 169 The attestation clauses provided, in respect of the personal party, that it was signed by him in the presence of a stated person and, in respect of the corporate party, that its common seal "was hereunto affixed by authority of the Directors in the presence of ..". Ipp J proceeded by considering s.9(4) of the Western Australia Property Law Act 1969, but it is obvious that his Honour applied the test that the intention of the parties was the matter which determined whether the document could be characterised as a deed. In particular, he noted that in clause 4 it was stated:- 170 "The parties agree that the Purchaser shall as a consequence of this Deed be entitled to demand of the Vendor a transfer … ." (My emphasis.) At p.252 his Honour recognised that, prima facie, the instrument contained many indicia of an agreement and he considered certain of its provisions "ordinarily would be a very strong indication that an agreement was intended": p.253. However, on closer analysis, he concluded that that was not intended. He said, p.253:- 171 "In my view, an examination of the substance of the instrument reveals that it was intended to record a gift of the property by the deceased to Westham subject to the condition that, in accepting the gift, Westham would pay the necessary stamp duty." He referred to the absence of consideration and, at p.254, said:- 172 "The most obvious and significant of these factors is the provision in clause 4 that the parties agree 'that the purchaser shall as a consequence of this deed be entitled to demand of the vendor a transfer …'. The phrase 'this deed' is an unequivocal statement by the parties that the document was intended to be a deed. Had the words 'this deed' appeared in the attestation clause, in the form, say, 'this deed signed by the said Eric George Lloyd' there would be little doubt that the instrument would thereby have been expressed to be a deed within the meaning of s.9(4). I consider that there is a great deal to be said for the proposition that it is immaterial whether the words appear in the attestation clause or the body of the instrument itself. At the very least these words strongly indicate that the instrument purports to be a deed." (My emphasis.) His Honour also considered that the existence of the recital, and of the phrase "these presents", and of the word "witnesseth", were consistent with the intention that the instrument be a deed. He said:-

[76]

In seeking to find the intention of the parties in the present case, I have, in favour of the view that the document is an agreement under hand, the following factors:- (a) The description of the document. (b) The continued reference throughout it to its being a Contract and to matters having been agreed. (c) The method of attestation by all parties, save for the defendant. (d) The fact that it is quite usual for a building contract to be in the form of an agreement under hand. (e) The fact that there was no legal requirement or reason why the document should be in the form of a deed. (f) The terms of the annexures in the form of the conditions:- (i) "Building Contract Ancillary Deed" is defined as "the deed so entitled to be entered into between the Contractor, CIBC Australia Limited and the Principal". This showed the ability of the parties to refer to a document as a deed when they wished. (ii) "Contract" is defined as "the Articles of Agreement:' "these Conditions of Contract"; "all Schedules and other documents annexed to the Articles of Agreement or to these Conditions of Contract"; "any Special Conditions"; "any documents incorporated herein expressly or by written agreement of the parties"; and "the Building Contract Ancillary Deed". (iii) The continual reference to "the Contract" or "this Contract" throughout the Conditions, and, particularly, the terms of clause 36. (g) Albeit three years later, when the plaintiff and JGL executed the Deed of Variation and Release which prima facie was a deed, they stated that the document was "executed as a deed". So also did the plaintiff and the defendant when they executed the Performance Guarantee. 176 The matters to be weighed against this are the terms of the attestation clause of the defendant and its reference to a Deed and the use of the words "IN WITNESS". In my opinion, these indicia are insufficient to lead to the view that the intent to be construed from the document is that it is a deed. If the defendant had such an intention, it seems to me that the high probability is that it would have required the document to be stated to be a deed and executed unequivocally by all parties as such. I rather think, and there is surmise in this, that its form of attestation arose because it was being executed pursuant to a power of attorney.

[77]

My conclusion is that it has not been established that the Articles of Agreement, upon their proper construction, evidence an intention that they were executed as a deed. 177 Estoppel And Waiver 178 In answer to the allegations in paragraphs 13 and 14 of the Further Amended Defence, the plaintiff has asserted that the defendant has waived its entitlement to rely upon the assertions and is estopped from so doing; that it has acquiesced in the validity of the notices "and the other matters pleaded therein"; and that it has confirmed the subject causes of action in accordance with s.54 of the Limitation Act. The particulars are that by letter and/or orally "on occasions too numerous to particularise" the defendant acknowledged receipt of each notice; did not dispute its validity; and caused the plaintiff to attend meetings, correspond with it, instruct consultants and take other steps reliant upon the validity of each notice. It was further pleaded that the defendant filed a Defence on 17 July 1998, which did not dispute the validity of any notice. 179 I have dealt with the validity of each notice and, in view of the way the matter was argued, acquiescence does not assist the plaintiff, even assuming in its favour that there was acquiescence. Even if the defendant accepted the validity of the third notice, which in my opinion it did not in relation to the roof, the first and second notices do not avail it. 180 In the plaintiff's submissions in reply it was stated that the validity of the notices was not in question; that the defendant was saying that it would do the work and insisted that the plaintiff could not have the work done by anyone else; and that, in relation to the roof, the whole issue of water penetration and not just an individual leak or individual leaks was being addressed. In these circumstances the submission was made that the situation satisfies the requirements in The Commonwealth of Australia v Verwayen (1990) 170 CLR 395. 181 There is no doubt that there were disputes between the plaintiff and the defendant as to the rectification work to be carried out to satisfy the plaintiff's complaints and that, notwithstanding those disputes, the defendant carried out, or caused to be carried out certain rectification work. It stated, through its solicitors and personally, that it would comply with its obligations under the notices. As I have already found or noted, and I shall only deal with complaints about the roof for that is all that remains in issue, the first notice dealt with one specific leak, the second did not refer to the roof at all, and the third led to the defendant's disputing any obligation in relation to the roof. In respect of that notice I have found that it did raise a sufficient complaint about the roof generally to comply with the requirements of specificity in clause 4.1(b). 182 In these circumstances attention can be focused on the third notice. The defendant did not accept its validity in relation to the roof and, in those circumstances, it certainly made no representation as to either the validity or, more importantly, the applicability, of the notice. However, for present purposes, the necessity to rely upon estoppel and/or waiver arises from the pleading of the Limitation Act in relation to that notice and the proceedings subsequently brought on 3 June 1998. 183 To give rise to an estoppel there must be a clear representation on the basis of which the party to whom it is made has relied and acted to his detriment, such that it would be unjust to allow the representor to resile from that representation. 184 In the present case there is not a skerrick of evidence that the defendant ever represented to the plaintiff that it would not rely on the Limitation Act. This case is stronger in favour of the defendant than it might otherwise have been by reason of the fact that the third notice was given after the limitation period applicable to contracts had expired, and, had it been relevant, after the tortious limitation period had expired. Further, the notice having been given, the defendant stated that it did not propose to carry out rectification work to the roof. 185 It may be, and I put the matter no higher than this, that had the defendant, after receipt of the third notice, agreed to carry out the rectification work to the roof, an argument would have been available to the plaintiff that it had thereby represented that it would do that work such that if it did not and if proceedings were subsequently brought, albeit after the limitation period expired, the plaintiff could rely upon that provided it established that it had failed to sue within the limitation period on the basis of the representation. 186 But that is not this case. The responsibility for the repair of the roof, after the giving of the third notice, was always in issue and, as the limitation period had expired the plaintiff could not, in any event, have changed the position. 187 The plaintiff's submissions relied upon the decision in Verwayen. However, that was a very different case. The proceedings were started out of time. The Commonwealth delivered a defence admitting the allegations of negligence, but not of injury, loss or damage. The action proceeded towards trial on the single issue of damages and the parties joined in several applications for expedition of the hearing. 188 Thereafter an order was made giving the Commonwealth leave to amend the defence to allege, inter alia, that the plaintiff's action was barred by s.5 of the Victorian Limitation Act. The plaintiff replied raising waiver and estoppel. The particulars included a letter, which was written by the relevant Minister after the institution of the proceedings, stating that the Commonwealth had admitted negligence and was "not pressing the statutory limitation period as defence"; conversations between the respective solicitors that that defence would not be raised; and reliance on those matters pursuant to which the plaintiff instituted and continued the proceedings. 189 In Verwayen Deane, Dawson, Toohey and Gaudron JJ were of the view that the Commonwealth was not free to dispute its liability to the plaintiff; Deane and Dawson JJ so holding on the ground of estoppel, and Toohey and Gaudron JJ reaching that conclusion on the basis of waiver. 190 In my opinion there can, in the present case, be no question of estoppel because there was no representation that there would not be reliance on the Limitation Act and, accordingly, the plaintiff did not act to its detriment on that basis. It did not lead any evidence to suggest that it had received a representation or relied on it, i.e. a representation that no reliance would be placed by the defendant on the Limitation Act. 191 It is therefore convenient to turn to the question of waiver. Toohey J set out what had transpired in the proceedings, prior to the Limitation Act being raised, and considered the effect of the amendment to do so. At p.465 his Honour said:-

[78]

"Putting to one side for a moment the terminology of waiver or estoppel, it is necessary to ask - what is Mr Verwayen's complaint by reason of the introduction of the new matters into the Commonwealth's defence? One thing is clear, he cannot complain that, by reason of anything done or not done by the Commonwealth, he was induced to delay bringing his action until after the relevant limitation period had expired. As already mentioned, the limitation period had expired well before there was any communication between Mr Verwayen or his advisers on the one hand and the Commonwealth or its advisers on the other. Nor can he complain that he was induced to bring proceedings when he did because of any assurance given by the Commonwealth." 192 These two points are applicable in the present case. His Honour said that it was clear that the subsequent conduct of the Commonwealth induced the plaintiff to continue his action in the belief that liability was admitted, and commenced his consideration of waiver by reference to the well known statement of Isaacs J in Craine v Colonial Mutual Fire Insurance Company Limited (1920) 28 CLR 305. At p.467, he said:- 193 "Nevertheless, usage has sanctioned waiver as apt to signify 'the legal grounds on which a person is precluded from asserting one legal right when he is entitled to alternative rights inconsistent with each other' and 'the legal grounds on which a person is precluded from raising a particular defence to a claim against him': Mason J in Sargent v ASL Developments Limited." 194 His Honour said that waiver was an appropriate term to describe the loss of a defence otherwise available to a defendant, ".. when a defendant 'either agrees with the claimant not to raise that particular defence or so conducts himself as to be estopped from raising it' ..". At p.473, he said:- "Waiver, in the sense used for the purposes of this appeal, may be found in the deliberate act of a defendant not to rely upon a defence available to him. That is not to say that there must be an intention to bring about the consequences of waiver; rather, the conduct from which waiver may be inferred, must be deliberate. Detriment is not an essential attribute of waiver, though it will often be found as a consequence. Within the adjudicative process at any rate, it is enough that the defendant 'announces' a defence which is available to him and which is there for his benefit. 195 A defence available to a defendant, whether it be on the facts or on the law, is not waived merely because the defendant does not initially plead that defence. It is commonplace for pleadings to change as an action progresses, whether by way of expansion or contraction (though usually the former). But what happened in the present case is more fundamental than a pleading point. The situation is not simply that the Commonwealth filed a defence to the action and later sought to add a plea of limitation to that defence. The Commonwealth sought to adopt a position which had been open to it at the outset but which it deliberately chose not to make a part of the issues for adjudication. The stance of the Commonwealth from the beginning, consistent with its communications to Mr Verwayen's advisers, was that it was not relying upon the Limitation Act, indeed that it was not defending the action, save as to the amount of damages to be awarded to Mr Verwayen. It was on that footing that the plaintiff pursued his action for damages right through to the listing of the action for the assessment of damages. To uphold the limitations plea in those circumstances would be to permit the Commonwealth to rely upon a defence which it had unequivocally renounced." (My emphasis.) In Verwayen it was noted that the provisions of the Victorian Limitation Act did not go to the jurisdiction of a Court to entertain a claim, but to the remedy available, and hence to the defences which may be pleaded. The position may well be different under the New South Wales Limitation Act where, upon the expiry of the limitation period, fixed by or under the Act for the causes of action specified in s.63(1):- 196 ".. the cause of action to the debt damages or other money is, as against the person against whom the cause of action formerly lay and as against his successors, extinguished." 197 None-the-less, Part 15 rule 13(2) requires a party relying on the Limitation Act to plead that. Gaudron J also considered waiver. At p.484 her Honour said:- "Perhaps there is a principle of wider application, but it is clear that a party to litigation will be held to a position previously taken (that position having been intentionally taken with knowledge) if, as a result of that earlier position, the relationship of the parties has changed. The changed relationship, in the terms used in Phillips v Martin and approved in Wilson v McIntosh , constitutes an 'equity which [the other] has … raised'. 198 Given that the position deliberately adopted by one party has brought about a change in the relationship of the litigants, a doctrine which holds the parties to that relationship may be seen as resting either on general policy considerations or on principles analogous to those of estoppel." 199 I have noted that Toohey J did not consider that the mere failure to plead the point originally was fatal. This was consistent with the statements of Mason CJ at p.414, Brennan J at pp.426-7, Deane J at pp.447-8, Dawson J at p.462, and Gaudron J at p.485, although it is necessary to note that her Honour did consider that in the circumstances of that case the relationship of the parties was altered by the original defence, which admitted negligence and failed to raise the statute. Although, by its original Defence, the defendant did not raise the Limitation Act, it did so in its Amended Defence filed on 22 July 1999. On 16 July 1999 the matter came before Einstein J when the parties handed up Short Minutes of Order. They were prefaced by the words "By consent" and, in paragraph 2, it was provided:-

[81]

In my opinion:- (1) The plaintiff is only entitled to rely on the third notice. (2) The third notice only raises an allegation of breach of contract and the cause of action to which it referred is statute barred. (3) The third notice did not raise an allegation of breach of tortious duty. (4) The Performance Guarantee did not guarantee any tortious liability. (5) The Performance Guarantee only guaranteed the performance of obligations enforceable against JGL. (6) Even if the conclusions in (3) and (4) are wrong the tortious cause of action is statute barred. (7) The Articles of Agreement do not constitute a deed. (8) Estoppel, waiver and acquiescence have not been established by the plaintiff. The consequence is that there must be judgment for the defendant. However, lest others take a different view, I shall state my findings on the issue as to the appropriate method of rectification. 202 The Preferred Method Of Rectification 203 There was a dispute between Mr McMillan and Mr Mursa as to the way in which rectification should be carried out. Both experts were highly qualified to give evidence about the methods of rectification. Ultimately, the decision as to whom I should prefer, bearing in mind, as Mr Callaghan accepted, that his client bore the onus of satisfying me that Mr McMillan's method of rectification was the appropriate one, depends upon an assessment of their evidence, unaffected by matters such as qualifications and, in the way in which the case was argued, demeanour. In his affidavit of 22 December 1998 Mr McMillan set out his extensive curriculum vitae and annexed several reports. In relation to the roof, he noted in his report of 22 May 1998 that there was water penetration to the Level 6 office ceiling, which had not been rectified in a satisfactory way. He found that the membrane had deteriorated very significantly and, in limited areas, had broken down completely. He expressed the view that there was a valid reason to suspect that breakdown would become more widespread as the membrane continued to age. He continued:-

[82]

" Ideally , the existing wearing surface and original membrane should be stripped from the roof and replaced. However, for economic reasons, the lesser cost option must be perused (sic)." (My emphasis.) 204 Thus, in 1998, he was of the view that a method of rectification, other than that he considered to be ideal, should be followed. There was no suggestion that the lesser cost option would not solve the problem. 205 He concluded that further investigation was necessary before "the fine details of the system recommended to ensure the moisture tightness of the main roof area" could be worked out and that "and that in general principal (sic) we recommend that a suitable liquid system be provided over the existing concrete wearing surface on the entire main roof area". 206 On 15 May 1997 Mr McMillan wrote to the Building Supervisor referring to a joint inspection on 16 April 1997 of the failed membrane over the Deputy Commissioner's office. 207 On 1 June 1999 Mr McMillan swore a second affidavit to which he annexed a letter of 31 May 1999 to the solicitors for the plaintiff. That letter reviewed various quotations for the roof membrane replacement and recommended that from T.A. Taylor & Son Pty Limited at a cost of $238,690. In his third affidavit of 17 August 1999, Mr McMillan annexed a detailed report, which he wrote to the solicitors for the plaintiff on 13 August 1999. In relation to the roof he said:- 208 "As part of the recommended waterproofing works on the roof, a new track slab for the building maintenance unit (BMU) is to be constructed over the new membrane. Our checks on the existing roof structure indicated that the additional load from the new slab could be accommodated on both sides of the building, but not in the centre portion of each end of the building. Strengthening of the roof structure in the relevant areas was detailed on our drawings …, a copy of which is attached, and involved provision of steel beams under the existing slab bands, together with associated alterations to existing services and making good upon completion." 209 In a further letter to the solicitors for the plaintiff of the same date, Mr McMillan commented on Mr Mursa's recommendations, noting that Mr Mursa expressed the view that the Procure membrane originally applied to the top surface of the roof slab was not intended to guarantee watertightness, but was a low cost second line of defence with the post-tensioned slab being regarded as the primary waterproofing element; and that Mr Mursa contended that the intent of the original brief in respect to waterproofing of the building could be met by progressive sealing of cracks in the slab where water leaks were then known, or where they may occur at some time in the future. He considered that the number and location of leaks as found by Mr Mursa was of interest and was not identical to those noted by the Australian Taxation Office in its complaint of 1 February 1999. 210 He disagreed that the originally applied membrane was not intended to guarantee complete waterproofness, because he said that was totally at odds with the advice supplied by JGL, which he set forth. He noted that in any event the membrane had not been applied conformably with the specifications, which was not in issue, and continued:- "The ever increasing number of leaks through the roof slab is testament to the total inadequacy of the original application of the Procure membrane, as well as sound evidence of continuing deterioration of this membrane. 211 Previous localised repairs have to date sealed a number of leaks. However, accelerated weathering tests have found long term incompatibility between the Procure and the membrane material as used for these repairs. Hence, breakdown of these patches is to be expected in the not too distant future." Mr McMillan concluded by saying that the method suggested by Mr Mursa ignored the rights the plaintiff had under the Building Contract not to have the ATO continually disturbed by water leaks and their patching, and:- 212 "Also, it virtually ensures the need for ongoing maintenance works as future membrane deterioration exposes further areas of the slab to surface moisture and hence increase in the likelihood of new leaks into Level 6." 213 He concluded that the existing membrane had failed in many areas and that patching the underside of the roof slab only amounted to a "bandaid" type rectification. 214 In cross-examination Mr McMillan said he wrote specifications for waterproofing parts of structures "all the time", and that about forty per cent of his time in the last ten years has been spent on remedial engineering, a lot of which involved waterproofing. 215 He agreed that his comments about pursuing a lesser cost option were a reference to cost being a factor, and that he was aware that the solution he envisaged originally was costed by a quantity surveyor at between $125,000 and $130,000. He also agreed that was not his current proposal. 216 Mr McMillan was referred to a plan prepared by Mr Mursa, which is Appendix C to his affidavit of 15 October 1999, in which he had marked with a solid black dot leaks through the concrete. Mr McMillan did not agree that that represented all leaks and described others he had seen. He agreed that certain marked areas could have been leaks caused by defective parapet flashing seals, and that it was possible that one crack "meandered across the slab" and gave rise to several leaks. 217 At Tp.32 Mr McMillan said that post-tensioned slabs assisted waterproofing, but that it was not good building practice to rely on them as the sole waterproofing and that the critical feature from that point of view is the membrane. He said that cracks in the concrete do not matter if the membrane is performing its job. 218 Mr McMillan was referred to Appendix C. He said that it was quite possible that all the notations of leaks made on that by Mr Mursa could have come from a total of five cracks or crack systems, and that the crack in the membrane could have occurred by virtue of the crack in the concrete in consequence of differential movement of the two faces. 219 Mr McMillan said that his only knowledge of Duraseal Inject 2000, which was the remedial material Mr Mursa suggested, was what Mr Mursa had told him; that he had never used it; and that he had never seen it. His understanding was that it is a flexible sealant which expands and is activated by moisture. 220 Mr McMillan agreed his method of rectification would obviously add extra weight to the roof, which would necessitate the addition of two steel beams, although he said that would not involve major work because the beams would be raised in two metre lengths. He conceded the extra weight could place additional strains on the concrete, which might lead to some further cracking. At Tp.43 Mr McMillan was asked about the discrepancy in cost between his proposal and Mr Mursa's proposal, and whether it was reasonable to spend an extra $270,000 on the whole roof "just to remedy those five cracks". He replied:-

[84]

"A. Or to put it a different way, if the contractor had come out and said, 'we will carry out the works as recommended by Mr Mursa and we will guarantee that if the slab leaks in the next ten years we will be out there forthwith and repair it at no cost and at little inconvenience to Meredith Properties', that would be a different scenario to the one that has been offered." 223 Thus, Mr McMillan, as I understand it, was looking for a standard of workmanship, which would justify a ten year warranty. 224 In his affidavit of 28 May 1999 Mr Mursa annexed a copy of a report he had prepared on 27 May 1999. That stated that he had viewed the premises and carried out testing to various parts of them and, in relation to the roof, he described its various members and said that the structural slab was coated "with a minimal liquid applied modified urethane membrane" and a reinforced concrete wearing slab. On inspection he found that the roof had been visually inspected on several occasions and no water penetration in the locations marked on Appendix C, although stained and damaged ceiling panels were visible. He set forth his test procedures, which involved hosing and flooding portion of the roof and the test results. He found that the flood testing of the areas immediately over the stained areas of ceiling and the identified locations of water penetration produced water penetration to the interior within two to twenty minutes, the degree thereof being directly proportionate to the time taken for the water penetration to appear, namely the shorter the time taken the greater the amount of water entry. Inspection of the underside of the pre-stressed concrete slab in the location of the water penetrations revealed water was entering through cracks in the concrete. He determined that water was entering through ineffective seals in flashings and cracks in the concrete. In relation to the latter problem he recommended the removal of ceiling tiles, the folding back of the insulation fixed to the underside of the slab to reveal the crack, and the carrying out of various procedures to enable the pressure injection into the cracks of Duroseal Inject 2000. He set out the reasons why he favoured this approach. 225 In his affidavit of 15 October 1999 he annexed a further report and, in relation to roof leaks, he said that he remained of the view that his approach was the better and he refuted the suggestion that it was a "bandaid" proposal. He said that it was cost effective, enabled the building to continue to be fully operational, and would not expose it to new loads with the consequent dangers that new problems would arise. 226 In his evidence in chief he elaborated on his not inconsiderable qualifications in the area of waterproofing structures. 227 In cross-examination Mr Mursa said that the water tests were carried out some weeks before his first report of May 1999. He described the testing, some of which involved flooding the roof, and some of which involved heavy hosing of it. Although he was cross-examined about the effectiveness of this testing, he maintained it was appropriate and proper. No evidence was called from Mr McMillan, or anyone else, to suggest that it was not. Mr Mursa said that where there were broad areas of no water penetration the existing system was working quite well and, therefore, there was no need to investigate it other than by testing it to ensure no leaks developed, and that it was highly unlikely that any cracks would develop in it having regard to the age of the building: Tp.100. He agreed that one could not be sure to what extent the slab had cracked, but he did not agree that unless all cracks in the soffit of the slab were filled there could be no assurance that his method of rectification would work because:-

[86]

".. but I would expect some sort of assurance that the repair was a long term repair and not a short term repair": Tp.115. 231 In this regard he agreed, essentially, with Mr McMillan. 232 In the light of this evidence the task falls to me to determine whether I should prefer Mr McMillan's method to that of Mr Mursa. Mr Callaghan submitted that Mr McMillan was eminently qualified and that having regard to the long history of leaks in the roof at various points the only way to be assured that they would not continue was by adopting his approach. He adopted, by way of submission, the criticism Mr McMillan proffered of Mr Mursa's approach. 233 Mr Callaghan also submitted that the evidence of Mr Mursa about how he would have the repairs effected, depending on who was to be ultimately responsible, was significant. He said that in the light of the history of this roof one would require some guarantee and, in lieu of a guarantee, one was entitled to have the more expensive, but none-the-less more effective, method suggested by Mr McMillan. However, as I have said, Mr Mursa did not generally disagree with this. The essential question remains as to what is required to repair the roof as it now is some nine years after construction. 234 Mr Young submitted that Mr Mursa's evidence should be accepted, or at least it did not allow Mr McMillan's evidence to be accepted on the balance of probabilities, on the bases that Mr Mursa had greater experience in waterproofing; that he had water tested the whole of the roof in a manner which had called for no criticism from Mr McMillan and found only certain leaks; that he had considered the method of correcting those leaks in the light of the fact that substantial areas of the roof had not leaked; and that he had not, as had Mr McMillan, changed his view as to the method of rectification. By this, Mr Young was referring to the fact that Mr McMillan had revised his 1998 method to provide for a different and far more expensive method. Mr Young also relied on the fact that Mr McMillan conceded that he had no experience with the method Mr Mursa put forward; did little or no inspection of the soffit; and did not inspect or check the perimeter slab around the project. 235 Although Mr McMillan's method of rectification was far more expensive than that of Mr Mursa, Mr Callaghan submitted that this was not a factor, in the circumstances of this case, to be taken into account. He said that the building had cost some $31m and that the cost to carry out the work done by Mr McMillan was minimal in relation to that and, in any event, that the plaintiff was entitled to have a building erected in accordance with the contract: Bellgrove v Eldridge (1954) 90 CLR 613. 236 As frequently occurs when experts differ, there is some difficulty in determining between the competing views. On the one hand one has a history of leaking in circumstances where the membrane was not laid in accordance with the specifications. On the other, one has a situation where the roof has now been thoroughly water tested by Mr Mursa in a manner which called for no criticism and has disclosed only certain leaks. The evidence is that any cracking in the concrete should have ceased some time ago and that there are reasonably large areas of the roof where the membrane is working satisfactorily. Further, Mr McMillan conceded that the building of the perimeter wearing surface would add additional weight to the roof, which may cause cracking. 237 The water testing carried out by Mr Mursa indicated the leaking areas, and it was accepted by Mr McMillan that if the repairs Mr Mursa put forward were carried out in a proper manner they would stop those leaks.

Meredith Projects v Fletcher Construction

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Judgment (89 paragraphs)

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Cases Cited (18)

Cited By (4)