Peninsula Balmain Pty. Limited v. Abigroup Contractors Pty. Limited [2002] NSWCA 211

Peninsula Balmain Pty. Limited v. Abigroup Contractors Pty. Limited [2002] NSWCA 211 - NSWCA 2002 case summary — Zoe

COUNSEL : Mr. F.M. Douglas QC with Mr. M.G. Rudge SC and Mr. M. Christie for appellant Mr. B.W. Walker with Mr. I. Faulkner for respondent SOLICITORS : Deacons Lawyers, Sydney for appellant Clayton Utz Lawyers, Sydney for respondent CATCHWORDS : CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - Australian Standard General Conditions of Contract AS2124-1992 - Position of superintendent - Whether agent of principal - Whether power to extend time continues after termination of contract - Whether builder's entitlement to payment for variation depended on compliance with clause 40.2 - TRADE PRACTICES - Misleading conduct - Must be apt to mislead in some non-trivial respect - Non-disclosure by principal of agreement with superintendent - Agreement, on true construction, has no relevant impact on exercise of superintendent's functions - Circumstance that commercial people may think otherwise does not make non-disclosure misleading - Whether misleading conduct either by "doing" or "refraining" - Significance of non-disclosure being "inadvertent". LEGISLATION CITED : Trade Practices Act 1974 (Cth) ss.4, 52 Akron Securities v. Iliffe (1997) 41 NSWLR 353 Ambulance Service of NSW v. Daniel [2000] NSWCA 116 Amco Wrangler Ltd. v. Sukkar (1985) 1 NSWLR 577 Australian Development Corp. Pty. Ltd. v. White Constructions (ACT) Pty. Ltd. (1996) 12 BCL 317. China Ocean Shipping Co. Ltd. v. P.S. Chellaram Co. Ltd. (1990) 28 NSWLR 354 Dixon v. South Australian Railways Commission (1923) 34 CLR 71 Donovan v. City of Sale [1979] VR 461 Henville v. Walker (2001) 75 ALJR 1410 Hospital Products Ltd. v. United States Surgical Corporation (1984) 156 CLR 41 Jennings Construction Ltd. v. Q.H. & M. Birt (1986) 8 NSWLR 18 Koon Wing Lau v. Calwell (1948) 80 CLR 533 Leda Holdings Pty. Ltd. v. Oraka Pty. Ltd. (1998) ATPR 41,601 CASES CITED: London Borough of Mertin v. Stanley Hugh Leach Ltd. (1985) 32 BLR 68 Malec v. J.C. Hutton Pty. Ltd. (1990) 169 CLR 638 Marks v. GIO Australia Holdings Ltd. (1998) 196 CLR 494 McWilliams Wines Pty. Ltd. v. L.S. Booth Wine Transport Pty. Ltd. (1992) NSWLR 723 Opat Decorating Service Pty. Ltd. v. Hansen Yuncken (SA) Pty. Ltd. (1994) 11 BCL 360 Perini Corporation v. Commonwealth of Australia [1969] 2 NSWR 530 Renaud Constructions (ME) Pty. Ltd. v. Minister for Public Works (1992) 26 NSWLR 234 Semrani v. Manoun [2001] NSWCA 337 South Australian Railways Commissioner v. Egan (1973) 130 CLR 506 Sutcliffe v. Thackrah [1947] AC 727 Turner Corporation (Receiver & Manager Aptd) v. Austotel Pty. Ltd. (1994) 13 BCL 378 Walter Construction Group Ltd. v. Walker Construction Ltd. (2001) 47 ATR 48 Womald Engineering Pty. Ltd. v. Resources Conservations Co. International (1988) 8 BCL 158 DECISION : 1.Appeal allowed. 2.Orders below set aside. 3. Report of Mr. McDougall dated 19 February 2001, together with the supplementary report dated 27 February 2001, be adopted, subject to the following matters: (a) Disallowance of variation VPR32. (b) Abigroup's delay costs to be calculated at $7,890.00 per day. (c) The referee's disallowance of $998,271.00 being Peninsula's costs incurred between 16 January 2000 and 31 March 2000 set aside. (d) Finding of misleading conduct and breach of cl.23 by Peninsula set aside. 4.Matter remitted to referee to determine question of Peninsula's costs incurred between 16 January 2000 and 31 March 2000 in accordance with these reasons, and following that determination, remitted to the Equity Division for entry of judgment (including judgment for costs of the proceedings and before the referee) in accordance with these orders and the referee's determination of that question. 5. Respondent to pay appellant's costs of the appeal, and to have a suitors' fund certificate if otherwise entitled. 6. Leave to Abigroup to apply, by furnishing written submissions within 14 days, for re-consideration of Order 3(b) and/or Order 5, in which case Peninsula is to respond by written submissions within a further 7 days.

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SERVICES TO BE PROVIDED BY THE PROJECT MANAGER 5.1. The services to be provided by the Project Manager to the Principal under this Agreement are summarised hereunder: 5.1.1. - Assistance in the establishment of detailed client brief 5.1.2. - Organisation of site survey, and geo- technical survey 5.1.3. - Appointment of all sub-consultants (architects, engineers, etc.) 5.1.4. - Preparation of concept designs 5.1.5. - Value Management appraisal 5.1.6. - Liaison with appropriate authorities 5.1.7. - Preparation of detailed designs 5.1.8. - Preparation and constant monitoring of detailed budget 5.1.9. - Preparation of working drawings and specifications 5.1.10. - Obtaining of all necessary authority approvals 5.1.11. - Recommendation of most appropriate form of building contract 5.1.12. - Preparation of tender documents/form of contract 5.1.13. - Pre-qualification of tenderers 5.1.14. - Assessment/ recommendation of successful tenderer 5.1.15. - Overview of contract signing by contractor and client 5.1.16. - Administration of construction contract, verification of progress payments 5.1.17. - Quality control of all building works 5.1.18. - Constant co-ordination with client regarding mechanical and electrical fitout 5.1.19. - Processing of any valid variations 5.1.20. - Issuing of final certificate on completion 5.1.21. - Supervision of defects liability period. 6 The building contract is dated 20 March 1998, and is expressed to be between Peninsula as Principal and Abigroup as Contractor, and it provides for the works to be carried out for a "guaranteed maximum price" of $26.1 million. The contract incorporates the Australian Standard General Conditions of Contract (AS2124-1992) with certain modifications and additions provided by special conditions. 7 Clause 2 of this contract contains the following definition of "superintendent": 'Superintendent' means the person stated in the Annexure as the Superintendent or other person from time to time appointed in writing by the Principal to be the Superintendent and notified as such in writing to the Contractor by the Principal and, so far as concerns the functions exercisable by a Superintendent's Representative, includes a Superintendent's Representative.

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46.2 Time for Disputing Superintendent's Direction If the Superintendent - (a) has given a direction (other than a decision under Clause 47.2) pursuant to the Contract; and (b) has served a notice in writing on each party that if a party wishes to dispute the direction then that party is required to do so under Clause 47, the direction shall not be disputed unless a notice of dispute in accordance with Clause 47.1 is given by one party to the other party and to the Superintendent within 56 days after the date of service on that party of the notice pursuant to Clause 46.2(b). 14 The special conditions added cls.55-7, which relate to latent defects and variations, and are in the following terms: 55. The Contractor warrants as an essential part of this Contract thoroughly and comprehensively: 1. the Contract intent is to provide all aspects of Work required in the spirit of the documents be they detailed or implied and/or necessary to complete the Works to a high quality of finish and workmanship. 2. the work shall be executed to the true intent and meaning of the Drawings and Specification taken together. Where any item of work is not indicated but is indispensably necessary it shall be executed at no additional cost to correspond with work of a similar nature in accordance with the best trade practice. 3. examined and checked the documents listed in the schedule attached hereto and other documents, reports, maps, surveys, diagrams and other information made available by or on behalf of the Principal; 4. examined and taken into consideration all information which is relevant to the risks, contingencies and other circumstances which would in any way affect the Contractor's ability to execute the Works in accordance with this Contract; 5. examined the Site and its surroundings and informed itself of the physical conditions of the Site including previous Works carried out on the Site and satisfied itself as to the suitability of those previous works; 6. informed itself of the scope of the works, the buildability of the Works and of the nature of the work and materials necessary for the execution of the Works and the work under this Contract; 7. made its own interpretation as to the difficulties of execution of the Works and the work under the Contract; and 8. satisfied itself that no claim for additional work, additional resources, extension of time or anything else will be made in respect of any Latent Conditions.

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The Contractor must ensure that the Total Cost is not greater than the Guaranteed Maximum Price in accordance with the contract . The Principal shall not be obligated to pay the Contractor any more than the Guaranteed Maximum Price except in regard to variations or changes to the Scope of Works or adjustments in accordance with the contract required by the Principal. 15 The date for practical completion specified in the agreement was 1 March 1999. On 21 February 1999, the Superintendent wrote to Abigroup extending the date for practical completion to 26 April 1999. No other extension was sought or granted. 16 Work started in March 1998. Progress claims were submitted each month, and until about August 1999 payments were made for the amount recommended. Thereafter, no payments were made, because amounts claimed by Abigroup were exceeded by Peninsula's claims for liquidated damages for late completion. 17 On 10 November 1999, Abigroup commenced these proceedings, at that time claiming payment of its progress claim of 28 July 1999. On 12 October 1999, Peninsula filed a cross-claim seeking payment of liquidated damages. 18 On 16 November 1999, Abigroup issued a "show cause" notice concerning proposed suspension of the works. The next day, Peninsula issued a "show cause" notice concerning Abigroup's delays in completing the contract. 19 On 1 December 1999, Peninsula terminated Abigroup's employment with immediate effect, and it subsequently engaged another contractor to complete the works, at a cost of over $3.8 million. 20 On 2 December 1999, Hunter J in the Commercial List ordered by consent, pursuant to Pt.72 r.2 of the Supreme Court rules, that the whole of the proceedings be referred to a referee Mr. P.M. McDougall for enquiry and report. The referee's report was received by the Court in February 2001. 21 That report dealt with Abigroup's Third Further Amended Summons dated 8 June 2000 and Peninsula's Further Amended Cross-claim dated 22 December 1999. 22 Abigroup's claim was for damages for misleading conduct under the Trade Practices Act (arising from Peninsula's failure to disclose its agreement with East Asia) amounting to over $6.8 million, and similar damages allegedly arising from breach of cl.23 of the contract based on the same matter. In the alternative, Abigroup claimed moneys said to be due under the contract ($417,606.00), payment for variations ($1,916,303.00), delay costs ($2,582,502.00) and damages for wrongful termination of the contract. 23 Peninsula's cross-claim was for damages, including liquidated damages ($1,326,308.00), the cost of completing the works ($3,843,645.00) and damages for delay ($4,576,596.00). 24 The referee found that Peninsula breached cl.23 of the building contract by appointing East Asia as Superintendent, in circumstances where East Asia was engaged as Peninsula's agent in relation to all matters concerning the design and construction of the project. He held that Peninsula's failure to disclose the agency agreement amounted to misleading conduct under the Trade Practices Act. He found that, if Abigroup was entitled to damages based on these matters, it was entitled to a quantum meruit for the work which it did of $2,874,817.00. 25 In relation to Abigroup's other claims, the referee found that the Superintendent should have extended the date for practical completion to 5 June 1999; and that having regard to the variations and delay costs, prior to consideration of Peninsula's cross-claim, Abigroup was owed $2,466,847.00 pursuant to the contract. 26 In relation to Peninsula's cross-claim, the referee found that, subject to whatever followed from Peninsula's breach of cl.23 and misleading conduct, Peninsula was entitled to terminate the contract on 1 December 1999 because of Abigroup's delay, and was entitled to liquidated damages for the period 5 June 1999 to 1 December 1999, namely $1,342,500.00. He went on to say that if the appropriate measure was not the liquidated damages, but unliquidated damages, the damages for delay would be $2,794,496.00. The referee found that Peninsula's damages arising from the termination of the contract included the costs of completion ($1,903,078.00), from which had to be deducted the unexpended balance of the contract sum ($122,296.00). This gave a total of $3,123,282.00. However, the referee noted that the figure of $1,903,078.00 was arrived at after deducting from the actual cost of completion the costs of $998,271.00 incurred between 16 January 2000 and 31 March 2000, some unidentified parts of which related to the cost of fixing water damage caused by a broken water pipe in a third floor apartment. The referee also noted that the true reasonable cost of completion amounted to $2,228,198.00.

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Submissions 39 Mr. Douglas QC for Peninsula submitted that the primary judge was in error in concluding that "the relationship between proprietor and architect or Superintendent … is not of its intrinsic nature one of principal and agent". He submitted that in fact it is in the nature of the role of superintendent that the superintendent be agent for the principal; and he referred to Keating on Building Contracts, 6th Ed., 1995, Sutcliffe v. Thackrah [1974] AC 727, London Borough of Merton v. Stanley Hugh Leach Limited (1985) 32 BLR 68, South Australian Railways Commissioner v. Egan (1973) 130 CLR 506, and Perini Corporation v. Commonwealth of Australia [1969] 2 NSWR 530. Furthermore, in so far as the project management agreement required East Asia to act in the interests of Peninsula, this was not inconsistent with East Asia acting honestly and impartially as superintendent, because for Peninsula to require East Asia to do otherwise would put Peninsula in breach of its building contract: cf. Hospital Products Limited v. United States Surgical Corporation (1984) 156 CLR 41 at 97. 40 Furthermore, Mr. Douglas submitted, if and in so far as there were any conflict between East Asia's obligation to act professionally as administrator of the building contract and its acting as agent for Peninsula, the former would prevail, because the project management agreement required East Asia to do the former but merely authorised it to act as agent. 41 Mr. Douglas also submitted that there had been no finding that the non-disclosure of the project management agreement was intentional; and that, in the absence of a finding of intentional non-disclosure, there was no basis for a finding of misleading and deceptive conduct: Semrani v. Manoun [2001] NSWCA 337 at [62]; cf. McWilliams Wines Pty. Limited v. L.S. Booth Wine Transport Pty. Limited (1992) 25 NSWLR 723 at 729-30. 42 Mr. Walker QC for Abigroup submitted that, in so far as authorities suggested that a superintendent acted as a proprietor's agent in all functions exercised under a building contract, the word "agent" is used very widely and loosely, and does not distinguish between those functions in respect of which the superintendent acts as the proprietor's agent in such a way as to bind the proprietor, and those functions in which the superintendent acts in a certifying function and is subject to impartiality requirements. On a correct reading of the authorities, in exercising the latter functions, a superintendent is not acting as the proprietor's agent in the strict sense: see Perini at 536, Dixon v. South Australian Railways Commissioner (1923) 34 CLR 71, and London Borough of Merton at 79. Even if this Court should take the view that, on its true construction, the project management agreement did not require East Asia to act as Peninsula's agent when it carried out certifying functions, that was a matter of legal interpretation on which minds could differ, and the true test was the impact of the agreement on commercial people, as to which there was undisputed evidence from Abigroup which was accepted by the referee and the primary judge. 43 Mr. Walker referred to the finding by the referee that Peninsula, by entering into the agreement, "effectively inhibited the Superintendent from discharging the obligations of cl.23"; and that in consequence the Superintendent "did not assess the variation claims as and when they came to him for assessment, nor did he assess them reasonably or fairly"; and "Peninsula failed to ensure that the Superintendent arrived at a reasonable measure of time in respect of the delays caused by Peninsula and the Superintendent". 44 Mr. Walker submitted that the argument that it was in the interests of the proprietor that the superintendent exercise sturdy independence, because otherwise the proprietor would be in breach of contract, overlooked the reality that, particularly in grey areas, the superintendent could, without provable breach, act to the advantage of the owner and the disadvantage of the builder. 45 Turning to the interpretation of the project management agreement, Mr. Walker submitted that little weight could be given to the requirement that East Asia act professionally, because that was not a term apt to apply to corporations. Even if it was correct to say that the obligation to act professionally as superintendent prevailed over an authorisation to act as agent, nevertheless the authority to act as agent which was given and accepted under the agreement was extremely wide, and was not limited even by words such as "as and when you are pleased to do so". There was no suggestion that anyone read the grant of authority as excepting the certifying function, and there was no suggestion that the project management agreement was varied by entry into the building contract. Accordingly, Mr. Walker submitted, the referee was clearly correct, and the primary judge was correct, in finding that this undisclosed agreement did affect the reasonable assessment of risks involved in entering into the building contract and acceptance of East Asia as Superintendent. 46 Mr. Walker submitted that this was not a case of Peninsula refusing to do an act, but rather one of Peninsula doing an act, that is entering into the building contract without disclosing the project management agreement, thereby representing that the nominated Superintendent was clear of any inhibition from acting impartially other than being a related company. Accordingly, the requirement that the withholding of information be intentional, suggested in Semrani, had no application. In any event, the requirement in s.4(a) of the Trade Practices Act that, for something to amount to "refusing" there had to be a "refraining (otherwise than inadvertently)" meant merely that the person in question must know the relevant material and its non-disclosure must not be a mistake. In this case, there was no suggestion that the non-disclosure was a mistake, so the inference is readily drawn that Peninsula refrained, otherwise than inadvertently, from disclosing the material.

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Decision 47 The referee was entitled to accept evidence from senior management of Abigroup that, if they had known of the project management agreement, they would have sought one or more of three specified changes, and that failing Peninsula's agreement to one or more of these matters, they would not have recommended that Abigroup enter into the building contract and it would not have done so; and the primary judge was correct to accept this finding. 48 However, the referee's finding that not to disclose the existence of this "agency agreement" was "misleading and deceptive, though not necessarily intentionally" is in a different position. It can be said that this is also a question of fact, even if it amounts to a finding that the conduct in question falls within s.52 of the Trade Practices Act: cf. Ambulance Service of NSW v. Daniel [2000] NSWCA 116 at [47]-[52] and cases there cited. However, this finding was plainly based on a view as to the true legal effect of the project management agreement. With reference to this agreement, the referee said this: Whatever the actual effect might be, I would be in no doubt that a further obligation to be Peninsula's agent in all matters in relation to the design and construction of the project would tilt the balance to some extent in Peninsula's favour. 49 The primary judge took a similar view, to the effect that the project management agreement meant that East Asia was Peninsula's agent in all matters in relation to the design and construction of the project. 50 The authorities referred to by Mr. Douglas and Mr. Walker are not altogether clear as to whether a person in the position of a superintendent of a building contract is the owner's agent in exercising all the functions of the superintendent. However, in my opinion the better view (supported by Perini, Dixon, Egan and London Borough of Merton, and not refuted by Sutcliffe) is that the superintendent is the owner's agent in all matters only in a very loose sense, and that, when exercising certifying functions in respect of which the superintendent must act honestly and impartially, the superintendent is not acting as the owner's agent, in the strict legal sense. In my opinion, this is confirmed by the consideration that the issue of a certificate by the superintendent does not bind the owner to any extent beyond what is prescribed by the building contract itself, so that the owner can challenge such certificates. If the superintendent was acting as the owner's agent in the strict sense, the issue of the certificate would be an act done by the owner through its agent, which the owner could not then challenge. 51 In my opinion, it is an erroneous construction of the project management agreement to treat it as requiring East Asia to act as Peninsula's agent, in the strict sense, in all matters in relation to the design and construction of the project, including in relation to the certification function under the building contract. The project management agreement authorises East Asia to act as Peninsula's agent, but it requires East Asia to act in a professional manner in various functions, including the function of administering the building contract and in the certification role under that contract (clauses 2.5 and 5.1.16). To the extent that this requirement is inconsistent with East Asia acting as Peninsula's agent, in the strict sense, it prohibits East Asia from doing so. There is nothing in the authorisation of East Asia to act as agent which affects this prohibition. 52 There is some force in Mr. Walker's submission that this is just one judge's view, contrary to the view taken by the only commercial people to have given an opinion on the matter, including the referee, as well as that of the primary judge; and that even if my view were correct as a matter of fine legal interpretation, what was important was the effect of this undisclosed agreement on commercial people. 53 However, I do not think this submission should prevail. 54 In my opinion, for conduct to be misleading or deceptive, it must be such as is apt to mislead or deceive in some non-trivial respect; so that to make out a case under s.52, Abigroup needed to show that the non-disclosure of the project management agreement was apt to do just that. It was clear from the building contract itself that the Superintendent was to be engaged and paid by Peninsula, and was to act in some respects as Peninsula's agent; and the question was whether the undisclosed agency agreement relevantly changed this position. If my construction of the project management agreement is correct, the respect in which non-disclosure was apt to mislead or deceive could only be that there was an undisclosed agreement the true effect of which had no relevant impact on East Asia's exercise of its role as Superintendent, but which could be read by commercial people as having such impact. 55 No such case was suggested on the pleading. Furthermore, suppose that Peninsula had expressly represented to Abigroup that its agreement with East Asia required East Asia to perform various services in connection with the project for Peninsula for reward, including supervision of the building contract, but did not impinge on East Asia's obligation to act honestly and impartially in the discharge of its functions as superintendent. Accepting as I do that this is the true effect of the agreement, I do not believe that such an express representation could possibly be misleading or deceptive, even if commercial people might wrongly come to a different view. The present situation, where no express representation was made, is in my opinion a fortiori. Accordingly, in my opinion the referee's finding as to misleading conduct is vitiated by an error of law, and should be set aside. 56 My approach discloses a further problem for Abigroup, which links with the next topic, namely causation of loss. The referee accepted Abigroup's evidence that, if it had known of the agreement, it would have sought one or more of three modifications to the arrangement (identified as (a), (b) and (c) in par.17 of Mr. Abbott's evidence set out above), and if Peninsula did not agree to one or more of them, would not have gone ahead at all. However, the referee did not make any finding as between these alternatives. Officers of Peninsula were called, and they did not give evidence one way or the other as to whether they would have acceded to any of the three modifications which Abigroup said it would have sought, and they were not cross-examined on this matter. In those circumstances, Mr. Walker submitted that the primary judge was correct to infer that Peninsula would not have acceded to any of the modifications and that there would have been no building contract. 57 In my opinion, although this inference was clearly available in relation to the first two of the alternatives, (a) and (b), it was not available in relation to the third, (c). If as I believe the true effect of the project management agreement was in accordance with the third modification, there is every reason to believe that Peninsula would have agreed to modification (c), to the extent of making the true position clearer. The onus was on Abigroup to prove causation, and although the evidentiary onus can shift and although I am prepared to say it did shift in relation to the first two alternatives, I do not think it shifted in relation to the third. To put this another way, I do not think that Abigroup showed any basis for drawing an inference that Peninsula and East Asia would not have agreed specifically that the arrangement between them not impinge on East Asia's obligation to exercise its functions as Superintendent honestly and impartially, when this was already the true effect of the agreement between them. 58 In my opinion, there is also a difficulty faced by Abigroup arising from the referee's failure to find that the non-disclosure was intentional. I accept Mr. Douglas' submission that, in so far as what is alleged to be misleading or deceptive conduct arises from Peninsula's refraining from disclosing the project management agreement, Abigroup needs a finding that this refraining was not inadvertent. Mr. Walker submitted that it was sufficient that Peninsula knew of the project management agreement, acted intentionally in negotiating, and did not disclose the agreement in circumstances where this was not due to mistake. However, in my opinion the requirement in s.4(2)(c) that a refraining be otherwise than inadvertent requires that there be actual advertence to the question of whether something should be done or not and the formation of an intention that it not be done. I think this is in accordance with the decision in Semrani. 59 Mr. Walker relied on the alternative submission that Peninsula's misleading and deceptive conduct was the entry into the building contract without making the disclosure, and this was a "doing" and not a mere "refraining". However, there was no finding by the referee that the positive conduct was itself misleading or deceptive, or any identification of how it was misleading and deceptive. In my opinion, if Abigroup wished to rely on the positive conduct as being misleading, it would have been necessary to allege and prove what representation was conveyed by the positive conduct. For example, Abigroup could have alleged and sought to prove that the positive conduct conveyed that, apart from the relationship between the two companies constituted by their common directors and overlapping ownership, there was nothing inhibiting East Asia from performing its duties as superintendent honestly and impartially. Abigroup gave no evidence as to what it understood to have been conveyed or represented by the positive conduct, but only gave evidence that if some disclosure had been made, it would have acted differently. That evidence, in my opinion, was appropriate to a case of "refraining", but not to a case of "doing". 60 It follows from my above reasons that in my opinion also, there was no breach by Peninsula of cl.23 by reason of the project management agreement. 61 In so far as the referee found that the Superintendent did not assess variation claims reasonably or fairly, that is not a breach of contract for which Peninsula could be liable. In so far as the referee found that Peninsula failed to ensure that the Superintendent arrived at a reasonable measure of time in respect of delays caused by Peninsula and the Superintendent, this would be a breach of cl.23 by Peninsula. However, the only damages that might flow from these matters were identified by the referee as "most likely to lie in an award of interest for the late and wrong decisions on variations". That seems to relate to the matter in respect of which there was no breach by Peninsula itself, and there does not seem to be any support in the referee's report for damages flowing from the breach by Peninsula: Peninsula's breach affected only the question of extensions of time, to which I will come.

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MEASURE OF DAMAGES 62 Having regard to my decision that there was no misleading and deceptive conduct, there is no question of damages under ss.82 and 87 of the Trade Practices Act. There is also no question of damages for any repudiation of contract by reason of breach of cl.23; and I have already dealt with the question of damages for the more limited breach of cl.23 which the referee found. However, I should briefly indicate my views on the submissions that have been made. 63 Mr. Douglas submitted that, even if misleading and deceptive conduct had been shown, Abigroup merely proved that one of a number of alternatives would have ensued, one of which would not have involved any damages at all, because it was not proved that Peninsula and East Asia would not have agreed to vary their relationship to make it clear that East Asia would not be inhibited from acting honestly and impartially as superintendent. Next, Mr. Douglas submitted that the only loss suffered by Abigroup by reason of entry into the contract was due to its own breaches of the contract, in particular of the time limits under the contract, as found by the referee; and accordingly, Peninsula was not liable for damages for that loss: see Marks v. GIO Australia Holdings Limited (1998) 196 CLR 494 at [18]-[24] and [43]-[55]; Leda Holdings Pty. Limited v. Oraka Pty. Limited (1998) ATPR 41,601 at 40,517. The evidence was sufficient to disentangle the consequences of any misleading conduct and the consequences of Abigroup's own breach: Henville v. Walker (2001) 75 ALJR 1410 at [147]-[148], [166]; Akron Securities v. Iliffe (1997) 41 NSWLR 353 at 364-7. Mr. Douglas further submitted that it was quite wrong to assess damages on a quantum meruit basis, particularly where Abigroup did not seek rescission of the building contract. 64 Finally, in relation to Abigroup's Notice of Contention, placing reliance on a repudiatory breach of cl.23, Mr. Douglas submitted that leave should be granted to re-argue Renard Constructions (ME) Pty. Limited v. Minister for Public Works (1992) 26 NSWLR 234, with a view to establishing that, in cases of termination of such contracts for breach, the contract price did provide a ceiling on what could be awarded by way of quantum meruit. 65 Mr. Walker submitted that the primary judge was not shown to have been in error in disregarding the possibilities that a different contract might have been entered into, if Peninsula had agreed, and treating the matter on the basis that, but for the misleading conduct, there would have been no contract. At worst, the matter should be dealt with along the lines suggested by Malec v. J.C. Hutton Pty. Limited (1990) 169 CLR 638, and damages awarded on the basis of the court's assessment of the probabilities of the different alternatives. Mr. Walker submitted that it was appropriate to award damages by comparing Abigroup's actual position with the position it would have been in if it had not entered into any contract; and the quantum meruit approach was an appropriate way of doing this, since the profit component in the quantum meruit can be taken as prima facie equating with the value of the lost opportunity to make profits by allocating its resources elsewhere. On that approach, there was no need to separately assess losses caused to Abigroup by its own breaches of contract, because that would be already taken account of in the quantum meruit, and there would be no entitlement in Peninsula to damages against Abigroup for Abigroup's breaches of contract, because, but for Peninsula's misleading conduct, there would not have been any contract. 66 In my opinion, the onus was squarely on Abigroup to prove some loss, before a Malec approach could be applied; and in circumstances where Abigroup merely established four alternatives, one of which would, on my findings, not have resulted in loss at all, this threshold is not passed. However, if I were wrong in that view, I think a Malec approach would have been appropriate. On that approach, it would be necessary to assess the probabilities of no contract being entered into as well as those of some different contracts being entered into, and to award damages based on these probabilities. 67 Dealing with the circumstance of no contract being entered into, I would not have found error in the referee's approach, confirmed by the primary judge, in assessing damages with reference to a quantum meruit assessment of the work performed by Abigroup. In my opinion, it is not unreasonable to take the profit component in the quantum meruit as roughly equivalent to the value of the opportunity lost to Abigroup to direct its resources elsewhere. If that is the correct approach, then in my opinion Mr. Walker's submission that this should not be reduced by reason of Abigroup's breaches, except to the extent that those breaches have already been taken into account in the quantum meruit, is well founded. However, on the Malec approach, only a proportion of this loss would be awarded. The loss resulting from an alternative contract would probably be very small indeed, and would be more than offset by the liabilities that Abigroup would in any event have had under such an alternative contract. 68 Even if I had considered Peninsula to be in breach of cl.23 by reason of the existence and non-disclosure of the project management agreement, I would not have disagreed with the referee's view that this was not a fundamental breach of contract. Even if I had taken the view that it was such a breach, I would not have been minded to grant leave in this case to re-argue Renard.

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EXTENSIONS OF TIME 69 As mentioned earlier, the Superintendent extended the date for practical completion to 26 April 1999, and no other extension was either sought by Abigroup or granted prior to 1 December 1999 when the contract was terminated. However, the referee found that Peninsula was entitled to liquidated damages only for the period 5 June 1999 to 1 December 1999: that is, the referee found that Peninsula was entitled to liquidated damages as if the date for practical completion had been extended to 5 June 1999. 70 This finding was made, despite it being common ground that no claim had been made by Abigroup for such extension in accordance with the procedure set out in cl.35 of the contract; and despite the referee's finding that it was mandatory to follow that procedure and that any right to an extension of time was lost if the procedure was not followed. The referee referred to the cases Jennings Construction Limited v. Q.H. & M. Birt (1986) 8 NSWLR 18, Wormald Engineering Pty. Limited v. Resources Conservations Co. International (1988) 8 BCL 158, Opat Decorating Service Pty. Limited v. Hansen Yuncken (SA) Pty. Limited (1994) 11 BCL 360, Turner Corporation (Receiver & Manager Appointed) v. Austotel Pty. Limited (1994) 13 BCL 378, Turner Corporation (In Provisional Liquidation) v. Co-Ordinated Industries Pty. Limited (1994) 11 BCL 202, and Australian Development Corporation Pty. Limited v. White Constructions (ACT) Pty. Limited (1996) 12 BCL 317. 71 However, the referee found that, by reason of the penultimate paragraph of cl.35(5), it was still open to the Superintendent to grant an extension of time, even if the builder had not followed the cl.35 procedure. In doing so, he referred to the following passages from D. Jones, Building & Construction Claims and Disputes, section 4.3.5.1: In circumstances where the superintendent is empowered to grant an extension of time even when the contractor has not applied for it, must the superintendent exercise this right fairly? … The answer to this question under AS2124 is an explicit yes. "The principal shall ensure that at all times … the superintendent … act honestly and fairly". It may be arguable, then, that the principal will be in breach of contract to the contractor if the superintendent does not exercise its right to unilaterally extend time in the contractor's favour. 72 The referee expressed the view that, of the five extensions contended for before him by Abigroup, four were variations that could be classed as acts of prevention by Peninsula, and one was a "neutral delay"; and that the Superintendent should have granted extensions for the former, and should have granted an extension for the latter since it was reasonable for it to do so. The referee continued: Using the power which I believe I have to open up and review the decisions (including non-decisions) of the Superintendent, I therefore find that EOTs should be granted for all the delays listed at the head of this section, and for the times involved. 73 Although it was not necessary for him to do so, the referee also considered whether Peninsula was estopped by its conduct from contending that the extension of time claims were time-barred. The referee reviewed the factual circumstances, and concluded as follows: My conclusion is that the requirements of the contract as to timely notification were "on hold" for most and probably all of the period that Abigroup was on site. 74 The primary judge confirmed both of these conclusions.

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Submissions 75 Mr. Rudge SC for Peninsula submitted that the referee was correct to find that cl.35 was mandatory, and that if it was not complied with, Abigroup could not rely on the so-called "prevention principle" to resist Peninsula's claim for liquidated damages for late completion. Mr. Rudge relied on the two Turner cases referred to above, and on an article Wallace "Prevention and Liquidated Damages: A Theory Too Far?" (2002) 18 Building & Construction Law, 82-88. 76 However, Mr. Rudge submitted that the referee was in error in treating Abigroup as entitled extensions of time on the basis of the Superintendent's power to grant extensions, notwithstanding that cl.35 had not been complied with. Mr. Rudge submitted that this power was for the benefit only of the owner, it no longer existed after termination of the contract, there was no occasion to exercise it when no claim for extensions had been made to the Superintendent, prior to termination or even afterwards, and accordingly the primary juge was in error in confirming the referee's findings. 77 Mr. Rudge further submitted that there was no basis for finding an estoppel. Abigroup's pleading claimed only that time requirements were "on hold" in respect to applications for variation; and in any event, the reasons given by the referee did not support there being either a representation by Peninsula or a common assumption by Peninsula and Abigroup that time limits would not be relied on, or that any non-compliance by Abigroup with time requirements was in reliance on any such representation or assumption: cf. China Ocean Shipping Co. Limited v. P.S. Chellaram Co. Limited (1990) 28 NSWLR 354 at 366-8. Peninsula sought to support this submission by reference to Abigroup's own evidence on this matter, which had been before the referee but rejected by the primary judge. In order to do this, Peninsula applied to add a further ground of appeal, alleging error in the primary judge in rejecting this evidence; but this application was rejected during the hearing, because of its lateness, the inadequacy of supporting argument, and consequent prejudice to Abigroup.

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Decision 78 I accept that, in the absence of the Superintendent's power to extend time even if a claim had not been made within time, Abigroup would be precluded from the benefit of an extension of time and liable for liquidated damages, even if delay had been caused by variations required by Peninsula and thus within the so-called "prevention principle". I think this does follow from the two Turner cases and the article by Mr. Wallace referred to by Mr. Rudge. 79 In my opinion, no error is shown regarding the primary judge's acceptance of the referee's conclusion based on the Superintendent's power. In my opinion, this power is one capable of being exercised in the interests both of the owner and the builder, and in my opinion the Superintendent is obliged to act honestly and impartially in deciding whether to exercise this power. Of course, if a timely claim has not been made, and the ground on which an extension is claimed is one which is difficult to decide because of the time that has elapsed since the time when the claim should have been made, that may be a ground on which the Superintendent can fairly refuse the extension; but there is no suggestion that that is the case here. 80 In my opinion also, the power to extend time, including the power to do so even if no claim has been made within time, does not automatically come to an end with the termination of the contract for the builder's breach. Clause 35.6, providing for liquidated damages, expressly operates after the contract has been terminated under cl.44; and in order for it to so operate there must be a date for practical completion on which the clause can operate after termination of the contract. If an application had been made within time before termination and not yet determined by the Superintendent at the time of termination, it is plain in my opinion that the Superintendent would have power to determine that claim after termination. If a claim had been made before termination but outside the time provided by cl.35, and the Superintendent had not made a decision in exercise of the Superintendent's power to extend time notwithstanding non-compliance, in my opinion the Superintendent could still do so after termination. In those circumstances, I do not think the Superintendent's power is lost on termination, even if the claim for exercise of the power to extend notwithstanding non-compliance had not been made until after termination. 81 For those reasons, it was in my opinion open to the referee to do what he considered the Superintendent should have done in response to the claims made to the referee; and it was open to the referee to conclude that the Superintendent, acting fairly, would have granted the extensions which the referee found to be justified. This view may have some further support from the referee's finding that Peninsula was itself in breach of cl.23 in failing to ensure that the Superintendent arrive at a reasonable measure of time in respect of delays caused by Peninsula and the Superintendent. 82 It is not necessary to determine the estoppel question, on this point. However, there is in my opinion force in Peninsula's submissions that the referee's reasons showed that he did not find all the facts which were necessary at law to ground an estoppel, and that the primary judge was in error in so far as he accepted the finding of estoppel.

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The referee also held that Abigroup was entitled to delay costs arising out of the last two of those variations. 84 It is common ground that, in the case of the first four of the variations, cl.40.2 applied; and Peninsula's submission was that Abigroup had not complied with the requirements of cl.40.2. In respect of the last two of the variations, Peninsula's submission was that the Superintendent had not directed Abigroup to perform them under cl.40.1, and that, in order to be entitled to remuneration for such variations and to associated delay costs, Abigroup had to prove compliance with the requirements of cl.46 and had not done so. 85 In addition, Peninsula submitted that the amount Abigroup could recover in delay costs was limited to a daily rate set out in the contract. 86 The referee allowed the first four variations, but did not explicitly deal with Peninsula's argument that Abigroup had not complied with cl.40.2. However, he did find in relation to VPR11 that the proposed variation was notified on 8 July 1998 and that Abigroup submitted a price for it on 4 August 1998 (Red 253). 87 In relation to VPR51R, the referee found that the Superintendent had required removal of the topping. In relation to VPR53, the referee found that the work was additional to contract requirements, and was performed between June 1998 and March 1999 under the supervision of the Superintendent's consulting engineer TTW as something essential to give the relevant piping the designed fall. The claim for this variation was submitted on 26 March 1999, which the referee found (Red 215) to be "within a reasonable time". 88 The referee found that Abigroup was entitled to associated delay costs. 89 The referee's findings on all these matters were confirmed by the primary judge. In response to a submission that the delay costs awarded by the referee were excessive, because they were allowed at a rate far in excess of the figure of $7,890.00 per day stated on the tender form, the primary judge referred to cl.36 of the general conditions, stating that it contained an explicit requirement that the principal pay "such extra costs as are necessarily incurred by the Contractor by reason of the delay". He noted that that was in a contractual context where, by virtue of par.3 of the formal instrument of agreement, the general conditions were expressed to prevail over the tender documents in the event of a discrepancy or inconsistency. The primary judge considered there was an inconsistency, that cl.36 prevailed, and that accordingly the limit in the tender document had no application.

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Decision 92 I accept that the time requirements of cl.40.2 were not directly addressed by the referee, as they should have been. However, the referee did find that a price was promptly submitted in relation to VPR11. 93 As regards the others, I note that Peninsula made no submission that a price was not submitted at some time or that no direction to go ahead was given. In those circumstances, even if failure to submit advice concerning the construction program and a price within a reasonable time amounted to a breach of cl.40.2, that would not in my opinion disentitle the builder to payment for the variation, so long as a price was submitted at some time and a direction to go ahead given. 94 For that reason, I do not think Peninsula has made good any basis to find either that the referee was wrong or that the primary judge was wrong in relation to these four variations. 95 As regards VPR51R, in my opinion the referee's finding that there was an "instruction" to carry out this variation is sufficient to establish a "direction" within cl.40.1. 96 As regards VPR53, very extensive work was performed by Abigroup over nine months in consultation with the Superintendent's engineering consultant and to the knowledge of the Superintendent, which was in fact in excess of what was required by the original contract, and on the referee's finding, essential to have the plumbing working satisfactorily. 97 In my opinion, in order to entitle Abigroup to payment for this work as a variation under the contract, compliance with cl.40 was required, to the extent that there must either have been a direction from the Superintendent or written approval from the Superintendent. It seems clear that there was no written approval. Accordingly, one question that arises is whether what happened amounted to a "direction" by the Superintendent. (I note that cl.23 requires Abigroup to comply with directions of the Superintendent, and defines "direction" to include "agreement", "approval" and "permission" among others; but this probably does not affect the construction of "direction" in cl.40.) If it did not, there would still be a question whether the events I have mentioned gave rise to an agreement outside the contract or an estoppel or claim in respect of unjust enrichment which would entitle Abigroup to payment for this work. 98 Even if no "direction" had been given, it seems to me that in circumstances where what Abigroup was doing over nine months was done in consultation with the engineering consultant and to the knowledge of the Superintendent (which would in my opinion be attributed to Peninsula), Peninsula could not possibly claim damages on the basis that this work was a breach of cl.40; so to that extent at least, in my opinion, some estoppel would have operated. 99 There was no clear decision either by the referee or by the primary judge as to whether a direction was given, or whether Abigroup had some entitlement to payment outside the contract. On the other hand, there is no clear indication on the material as to precisely what submissions were made to the referee and to the primary judge. I do not think that Peninsula has made good any basis to find that the primary judge was wrong and/or that the referee was wrong in relation to VPR53. And if Abigroup's entitlement was either under cl.40 or outside the contract, then in my opinion cl.46 had no application. 100 In relation to the quantification of delay costs, on my reading of the contract material, cl.36 in the general conditions of contract (referred to by the primary judge) was displaced by cl.36 set out earlier in this judgment (see Blue 74 and 115), which is not inconsistent with the limit placed on delay costs by the tender document. That point does not appear to have been picked up in submissions, and it is possible that I am mistaken in this impression. However, on my reading of the material, the primary judge was wrong in his decision, and I can see no basis for displacing the limit provided by the tender. However, having regard to the circumstance that this matter was not dealt with in submissions, I would reserve leave to Abigroup to make further submissions on this after delivery of the judgment.

At a glance

Court

Decision date

Before

Source

Judgment (136 paragraphs)

Legislation Cited (1)

Cases Cited (15)