Owners SP 62930 v Kell & Rigby

LEGISLATION CITED : Trade Practices Act 1974 Uniform Civil Procedure Rules

Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 Darlington Futures Limited v Delco Australia Pty Ltd (1986) 161 CLR 500 CASES CITED : H & E Van der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157 Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Aust) Pty Ltd (1978) 139 CLR 231 Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45

George Floth Pty Ltd (Cross-Defendant to Third Cross-Claimant) PARTIES : Margaret Ann Waterhouse (Third Cross-Claimant) Kell & Rigby Pty Limited (First Defendant)

HJA Neal (Third Cross-Defendant) COUNSEL : D Loewenstein (Third Cross-Claimant) C Pedersen (Solicitor) (First Defendant)

Landers & Rogers (Third Cross-Defendant) SOLICITORS : Hickey Lawyers (Third Cross-Claimant) Horton Rhodes (First Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

26 November 2009 (ex tempore - revised 27 November 2009)

55042/08 THE OWNERS STRATA PLAN 62930 v KELL & RIGBY PTY LIMITED & 3 ORS JUDGMENT 1 HIS HONOUR: The plaintiff is the Owners Corporation of a strata title development at Kirribilli. It claims that the building work was defective: to the extent of about $1.2 million, of which some $250,000 is said to relate to mechanical services. In these proceedings the plaintiff sues the builder and the developers to recover damages for those alleged defects. 2 The developers have joined, as a cross-defendant, the firm of engineers who had contractual responsibility for, among other things, mechanical services (the cross-defendant to the third cross-claim, George Floth). The separate questions 3 George Floth says that the case against it is barred by reason of some provisions of the contract between it and the developers. In those circumstances, the parties agreed that the following questions should be determined separately and before the determination of any other issues in the proceedings: (a) whether the liability alleged in paragraphs 2, 13 and 17 of the amended Technology and Construction List Cross Claim Statement (third cross claim) is liability 'in respect of the Services, whether under the law of contract, tort or otherwise' for the purposes of clause 4.3 of the ACEA Guideline Terms of Agreement; (b) whether the cause of action pleaded in paragraphs 2, 9-17 of the amended Technology and Construction List Cross Claim Statement (third cross claim) is 'any action or claim whatsoever… in respect of the Services' for the purposes of clause 4.3 of the ACEA Guideline Terms of Agreement. 4 On 20 October Hammerschlag J ordered, by consent, that those questions be determined pursuant to UCPR r 28.4. The parties agree that George Floth is entitled to judgment on the third cross-claim if the answer to either of these questions is 'yes'. The agreed facts 5 The parties agree on the relevant facts, which are stated in a statement of agreed facts as follows: 1. In about September 1997, JK Waterhouse Snr and the first defendant/first cross-claimant retained the cross defendant to the third cross claim ('George Floth') to carry out certain mechanical engineering services ('the Services') in relation to the construction of 14 residential units at 63-65 Kirribilli Avenue Kirribilli ('the retainer').

2. The retainer was in writing and comprised the following: (i) Letter dated 28 August 1997 from Keith Franklin to George Floth including annexure 'A'; (ii) Letter dated 29 August 1997 from George Floth to Keith Franklin; (iii) Memoranda dated 9, 17 and 18 September 1997 from Keith Franklin to George Floth; (iv) Letter dated 10 October 1997 from George Floth to Keith Franklin; and (v) ACEA Guideline Terms of Agreement signed by JK Waterhouse Snr and the first cross-claimant

3. By clause 4.3 and Item 10 of the Schedule of the ACEA Guideline Terms of Agreement, the following were express terms of the retainer: (a) George Floth would be discharged from all liability in respect of the Services, whether under the law of contract, tort or otherwise, at the expiration of 2 years from the completion of the Services; and (b) the developers were not entitled to commence any action or claim whatsoever against George Floth in respect of the Services after that date.

(a) engineering design; (b) contract administration and quality assurance inspections and reports; (c) acceptance testing and commissioning checks on completion; (d) ensuring satisfactory completion of the defects liability period and operational maintenance provisions of the contract.

By reason of JK Waterhouse Snr's death, the retainer became enforceable by and against JK Waterhouse Snr's executors and administrators, namely the second and third defendants/second and third cross-claimants on the third cross-claim.

By written contract dated 27 October 1998, the second, third and fourth defendants/cross claimants on the third cross claim ('the developers') retained the first defendant ('the builder') to build the project.

Quitstar was the builder's mechanical sub-contractor, including in relation to air-conditioning and ventilation.

By fax of 9 May 2000, the builder wrote to the architect Bruce Swalwell (copied to George Floth) concerning final defects inspections.

By letter of 17 May 2000, the builder wrote to George Floth concerning Quitstar's variations. 11. By fax of 20 May 2000, the builder wrote to George Floth concerning Quitstar's variations.

George Floth completed the Services about 20 May 2000.

On 26 May 2000, practical completion was certified.

George Floth's last invoice in relation to the Project was 31 May 2000, and payment was received on 22 November 2000.

On 2 June 2000, North Sydney issued a final occupation certificate.

The plaintiff, the owner's [sic] corporation of the strata plan comprising the units, alleges that the building contains significant defects, the value of rectification said to be about $1.2 million. Those defects include air-conditioning and ventilation defects to the value of about $250,000.

The plaintiff commenced proceedings against the builder and the developers in relation to the defects on 30 March 2007.

The developers cross claimed against George Floth by third cross claim filed about 24 February 2009. The services provided 6 The contractual services to be provided by George Floth to developers included, in relation to mechanical services (ie air-conditioning and ventilation) the following: Mechanical

c) Documentation for tender purposes and statutory authority approvals.

d) Tender analysis and recommendations, including evaluation of alternatives.

e) Contract administration and quality assurance inspections and reports.

f) Acceptance testing and commissioning checks on completion.

g) Ensure satisfactory completion of the defects liability period and operational maintenance provisions of the contract. The third cross-claim 7 The third cross-claim alleges that George Floth has acted misleadingly or deceptively by approving the "as installed" drawings furnished by the subcontractor, Quitstar, who carried out the relevant works. The cross-claim asserts that the misleading or deceptive conduct is constituted by a representation said to arise from a letter which, omitting formal parts, reads as follows: The Quitstar as-installed drawings submitted on 9 th May, 2000 are approved.

Please submit a copy of the manuals. 8 It is said that at the time of making whatever representation can be spelt out of that letter, George Floth had no reasonable grounds for making it. Alternatively, it is said, the representation was one as to a future matter and made without reasonable grounds. The contract 9 It is common ground that the contract is constituted by a number of documents. Those documents include a "Guideline Terms of Agreement" which have been completed with details relevant to the particular project and, somewhat unusually, signed on behalf of the parties. Part 4 of that document deals with "Scope of Liability". Although debate focused attention principally on cl 4.3 and to some extent cl 4.5, it is desirable to set out the whole of the clause: 4.1 Direct and Indirect Loss The liability of the consulting engineer to the client arising out of the performance or non-performance of the services, whether under the law of contract tort or otherwise shall be limited to the cost of rectifying the works which are the subject of the commission. 4.2 Maximum amount of Liability The maximum liability of the Consulting Engineer to the Client arising out of the performance or non-performance of the Services, whether under the law of contract, tort or otherwise, shall be the amount specified in Item 9 of the Schedule, or if no amount is specified, $300,000.00. 4.3 Duration of Liability The Consulting Engineer shall be deemed to have been discharged from all liability in respect of the Services, whether under the law of contract, tort or otherwise, at the expiration of the period specified in Item 10 of the Schedule or if not date is specified on the expiration of one year from the completion of the Services, and the Client (and persons claiming through or under the Client) shall not be entitled to commence any action or claim whatsoever against the Consulting Engineer (or any employee of the Consulting Engineer) in respect of the Services after that date. 4.4 Estimates of Project Cost If the services include giving to the Client an estimate of the likely costs for the project the Consulting Engineer warrants only that he will exercise the reasonable skill, care and diligence of a Consulting Engineer in the preparation of his professional opinion of those costs. 4.5 Extent of Warranty The Consulting Engineer does not give any warranty nor accept any liability in relation to the performance or non-performance of the Services except to the extent, if any, required by law or specifically provided for in this Agreement. If apart from this Clause any warranty would be implied whether by law, custom or otherwise, that warranty is to the full extent permitted by law hereby excluded. Nothing herein, contained shall be read or applied so as to purport to exclude, restrict or modify or have the effect of excluding, restricting or modifying the application in relation to the supply of any goods or services pursuant to this Agreement of all or any of the provisions of Part V of the Trade Practices Act 1974 (as amended) or any relevant State Act or Territorial Ordinance which by law cannot be excluded, restricted or modified.

10 Mr D M Loewenstein of counsel, for the developers, accepts that the liability alleged in the relevant paragraphs of the third cross-claim is a liability in respect of the "Services" to be provided (and in fact provided) by George Floth under the contract. However, Mr Loewenstein submits, that liability is not one "under the law of contract, tort or otherwise". 11 Mr Loewenstein accepts further that what is "pleaded" in the cross-claim falls within the description "any action or claim whatsoever...in respect of the Services". However, he submits, those words are referable back to, and impose no greater limitation on liability than, the earlier words of cl 4.3 to which attention is drawn by the first of the two separate questions. The approach to construction 12 The parties accepted that, in general, the court's approach to the construction of commercial contracts is that identified by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109-110. It is not necessary to set out what his Honour there said. 13 Further, and specifically in relation to clauses excluding or limiting liability, it was common ground that the approach to construction is (with a possible exception to which I will refer) that described by the High Court of Australia in Darlington Futures Limited v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510. At that reference the Court, having reviewed the authorities, said that the interpretation of an exclusion clause is to be determined by giving the words in it their natural and ordinary meaning read in the light of the contract as a whole. It was important, their Honours said, to give due weight to the contractual context, including the nature and object of the contract as a whole. Finally, their Honours said, it might be necessary "where appropriate" to construe "the clause contra proferentem in case of ambiguity". The possible exception to which I referred earlier is that later decisions, including of the High Court, suggest that the contra proferentem rule is really a rule of last resort. Decision 14 In the present case, there is no suggestion that the contract between the developers and George Floth was negotiated other than on equal terms, by parties each in a position to bargain for what they thought to be appropriate contractual protection. 15 There are two examples that show this. First, for the purposes of cl 4.2, the limit of liability is specified at $5 million rather than the sum of $300,000 stated in the clause. Secondly, for the purposes of cl 4.3, the period of time after which a claim is not maintainable is stipulated to be two years rather than the one year specified in that clause. 16 Going back to the decision in Darlington for a moment: as is apparent from the authorities reviewed by the High Court before stating the principles as I have paraphrased them above, one of the matters with which their Honours were concerned was whether application of the clause in question would have the effect of denying substantially to one party the entire benefit of the contract. This is not such a case. On the contrary, it is a case where the objects of the contract have been substantially achieved. George Floth has (so I think I can assume) provided the relevant services under the contract. With the exception of the question as to misleading or deceptive conduct which is sought to be agitated by the third cross-claim, it appears to have performed those services, at least for the most part, in a satisfactory fashion. Giving the clause in question the effect for which George Floth contends will not deprive the developers of the benefit, or a substantial part of the benefit, of the contract. 17 When one turns to the words of Part 4, it will be seen that the words "whether under the law of contract tort or otherwise" appear in cls 4.1 and 4.2 as well as in cl 4.3. Clause 4.1 seeks to limit the monetary extent of loss for which George Floth might be liable, and cl 4.2 seeks to achieve the same result. In each case, the prospective liability is one that might arise "out of the performance or non performance of the services". To divert a moment from the language of the clauses, it is convenient to note that there is no particular consistency of punctuation, or, indeed, the use of initial capital letters. In cl 4.1, there is no comma between "contract" and "tort" and the word "services" does not have an initial capital letter. However, in cls 4.2 and 4.3, the comma is present as is the initial capital letter. 18 When one goes to cl 4.5, it may be seen that George Floth is making it clear that it does not give any warranty nor accept any liability in relation to the performance or non performance of the Services except to the extent required by law or specifically provided for in the agreement. 19 A construction of the relevant words in cl 4.3 must take account of the balance of Part 4, and in particular (although I do not suggest that this is determinative) the introductory words of cl 4.5. When one looks at the clause as a whole, the impression that is given is that George Floth is saying: (1) we will accept liability, in relation to the performance or non performance of the Services, for a specified time and in a specified amount; but (2) we will not accept liability outside those limits unless required to do so by some law, the effect of which cannot be excluded. 20 It is difficult to understand why George Floth would have gone to the trouble to spell out the extent of its liability in respect of causes of action that might arise under the law of contract or tort, or indeed that might arise otherwise except under the Trade Practices Act 1974 (or, perhaps, under statute more generally). One of the purposes of clauses that exclude or limit liability is to enable the party relying upon them to be able, as it were, to rule off its books once the monetary amount or the temporal limitation has been reached. There are clear commercial advantages inherent in this: including, of course, in relation to the cost of insurance. It would be strange, as I have said, to conclude that George Floth had gone to considerable trouble to exclude some but not all sources of liability. 21 The construction for which the developers contend might perhaps be understandable if it could be thought that, somehow, George Floth or its legal advisers (or, more accurately, the legal advisers of the Association of Consulting Engineers, whose standard form was used) were not aware of the terms and potential impact of the Trade Practices Act. However, it is apparent from cl 4.5 that they were all too much aware of the potential impact of that statute. 22 Mr Loewenstein drew attention to the language of exclusion clauses considered in other cases, where (he submitted) the language used was much wider, and more apt to exclude or limit liability for any possible cause of action whatsoever. He referred, by way of example, to the clauses considered in Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (1978) 139 CLR 231 and H & E Van der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157. 23 I do not think that a great deal of assistance is to be obtained by reviewing exclusion clauses, in different terms, in other cases. As the decisions to which I have referred earlier make clear, what is required is consideration, in context, of the particular language chosen by the parties. 24 In this case, Mr Loewenstein submitted, the operation of what might be called the first limb of cl 4.3 was neither expanded nor informed by what might be called the second limb. Further, he submitted, an understanding of cl 4.3 was not informed (at least, in a way that extended the operation of the limitation in cl 4.3) by the introductory words of cl 4.5. 25 I do not think that it is possible to break up clause 4.3, or for that matter the whole of Part 4, into discrete chunks which should be considered in isolation from one another. To my mind, that is not the proper approach to construction. In my view, when considering the extent of the phrase "the law of contract, tort or otherwise", it is legitimate to have regard both to the following words in the same clause "any action or claim whatsoever" and to words of similar widths in the opening part of cl 4.5. 26 To my mind, looking at the matter objectively, what the parties sought to achieve was to specify precisely and exclusively, so far as the law allows, the monetary and temporal limits of any liability that George Floth might have with the developers under the contract between them. 27 To say that they did so in respect of all causes of action, apart from those that might arise under the Trade Practices Act, is, in my view, to give the contract, and in particular Part 4, an artificial and non-commercial construction. On the other hand, to construe it as George Floth submits seems to me to be, looking at it objectively, no more than an effectuation of the intent of the parties. 28 Nor do I think that the view that I have expressed requires some violence to the language of the clause as a whole. On the contrary, I think, the words "or otherwise" are wide enough in their ordinary meaning to pick up liability under statute, and nothing in what follows (either in cl 4.3 or in cl 4.5) cuts down the available width of those words. 29 There are two "footnotes" to what I have said. The first is that there is no doubt that the claims articulated in the third cross-claim, are, as Mr Loewenstein rightly conceded, in respect of or in relation to the Services. For an explanation of the width of connection envisaged by the words "in respect of" or "in relation to", see cases such as Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45. 30 The second footnote is that there was no submission to the effect that the apparent operation of Part 4 (as I have construed it) conflicted with or should be read down by reference to, the limitation period of six years provided in s 82(2) of the Trade Practices Act. Conclusions and orders 31 For those reasons, I conclude that each of the questions proposed for separate determination should be answered "yes". It follows, as the parties are agreed, that the third cross-claim is not maintainable and that there should be judgment for George Floth on it. 32 I direct entry of judgment in favour of the cross-defendant to the third cross-claim on that cross-claim and I order the cross-claimants to pay the cross-defendant's costs. 33 The exhibits are to remain with the file for 28 days and thereafter to be dealt with in accordance with the rules. 34 The order for costs is to include any costs that have been reserved as between the cross-claimants and the cross-defendant on the third cross-claim. 35 I reserve liberty to apply in respect of any application that costs be paid on some basis other than the ordinary basis.

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