Mr Phillips' First Ground - "Entire Contract"
21The phrase "entire contract" is a shorthand description used to describe a contract where the parties have agreed, expressly or impliedly, that complete performance by a party seeking recovery is a condition precedent to the recovery of the contract price (see Cutter v Powell (1795) 6 TR 320; 101 ER 573). In such cases, nothing can be recovered "unless the work be done or it can be shown that it was the other party's fault that the work was incomplete or that there is something to justify the conclusion that the parties have entered into a fresh contract" (Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 233-234 per Starke J).
22In Baltic Shipping Company v Dillon [1993] HCA 4; 176 CLR 344 at 350, Mason CJ noted that the phrase "entire contract" is more accurately described as a contract containing an "entire obligation", being an obligation the performance of which is indivisible. It follows that the relevant obligation need not be the entirety of the performance expected of a party under a contract. Some aspects of the obligations imposed upon a party can be divisible but other aspects might have to be exactly performed. Thus, in describing a contract to cut and supply wood to a specific measurement in Steele v Tardiani (1946) 72 CLR 386 at 401, Dixon J stated:
"It is true that they were not employed to do a single piece of work under one entire contract so that, until the whole had been substantially performed, they would obtain no right to any payment. In that sense, it is not like the contract to build two houses for a single lump sum made by the unsuccessful plaintiff in Sumpter v Hedges."
His Honour continued (at 401):
"But it can hardly be denied that the consideration which the employees were to give for the remuneration is firewood cut according to contract and, so to speak, only those billets or sticks can be counted which qualify by substantial or reasonable compliance with the specifications. In this sense the terms of remuneration are 'entire', or, in other words each divisible application of the contract is entire and is only satisfied by performance, not partial, but substantially complete."
23In the Local Court Mr Phillips made a similar contention in relation to the Architecture Agreement. He contended that performance by Tobias Partners was, in effect, divisible into five stages and that, in respect of Stages 1 to 2 and 4 to 5, each of them was an entire obligation, such that no legal obligation to pay a fee for each of those stages arose until the work on it was fully completed. Mr Phillips contended that Stage 2 was not completed and, thus, no obligation to pay any fee in respect of that stage had arisen.
24Further, in his cross claim Mr Phillips contended that it was wrongful of Tobias Partners to insist on the payment of the balance of fees for Stage 2 prior to its completion and that its insistence amounted to a repudiation of the Architecture Agreement. He said that he accepted the repudiation, bringing the contract to an end. He claimed, inter alia, that he was entitled to recover all the fees he had paid in respect of Stage 2.
25Her Honour rejected the contention that the Architecture Agreement was an entire contract or, more accurately, that it contained in respect of Stage 2 an entire obligation. In the course of so reasoning, her Honour also made a finding that, in respect of Stage 2, there was not a total failure of consideration. As I will explain, this latter finding was of significance to Mr Phillips' cross claim.
26However, her Honour also found that Tobias Partners had not completed work on Stage 2. In particular, in the quantum judgment her Honour expressly found that Tobias Partners had not undertaken substantial performance of the obligation to complete Stage 2. This finding is challenged by Tobias Partners in its cross appeal. Left unscathed, it meant that if Mr Phillips was successful in establishing that the completion of Stage 2 was an entire obligation imposed on Tobias Partners in the sense that I have discussed, it would mean that he did not have any obligation to pay any further amount for Stage 2. The question of whether Mr Phillips could recover for amounts already paid in respect of Stage 2, as sought by his cross claim, is a different matter.
27Counsel for Mr Phillips, Mr Bellamy, contended that her Honour had erred in law in finding that it was not an entire agreement in two respects.
28First, he contended that Tobias Partners had admitted in its pleadings that its obligation to complete Stage 2 was an entire one, but that her Honour had traversed that admission in her judgment. It was not disputed that if her Honour had made a finding contrary to an admission in the pleading it would amount to an error of law. The question is whether her Honour did so.
29The relevant admission was said to be contained in paragraph 4 of the defence to the cross claim. Paragraphs 3 and 4 of the cross claim pleaded as follows:
"3. The contract standing between the cross-defendant and cross-claimant was an entire contract calling for exact, or in the alternative, substantial performance.
4. In the alternative to paragraph 3 above, the contract standing between the cross-defendant and cross-claimant was a contract calling for exact, or in the alternative, substantial performance of several stages."
30Paragraph 4 of the defence to the cross claim stated:
"4. In response to paragraphs 3 & 4 Tobias accepts for the purpose of this litigation the matter pleaded and says the contract terms were all of the conditions which bound the parties and Tobias reads and relies upon them for their full meaning and effect."
31There is no doubt that, by a pleading, a party can admit and be bound by a matter of law (see Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 per Gummow J, and r 14.19 of the Uniform Civil Procedure Rules). However, the precise admission identified must be clear. The difficulty with these extracts from the pleadings is that they do not clearly convey that the "exact ... or substantial performance" referred to is a condition precedent to Tobias Partners recovering any part of the purchase price. Read literally, they only convey an admission that exact and substantial performance was required but, arguably at least, paragraph 4 of the defence to the cross claim leaves open whether Tobias Partners accepted that no obligation to make a payment arose unless that exact or complete performance took place.
32Mr Bellamy also pointed to concessions that he said were made by counsel for Tobias Partners before her Honour. However, those contentions were, in my view, qualified. This is illustrated by the following extract from the submissions of counsel for Tobias Partners:
"Paragraph 4 of our defence your Honour does accept for the purpose of this matter that what is pleaded and, it says, and says [sic] the contract terms were all of the conditions which bound the parties and Tobias reads and relies upon them for their full meaning ... So your Honour we just say there's [an] independent contractual mechanism by which we should be paid and the timing for it. How you want to characterise the contract we say that it really goes nowhere your Honour because Cutter and Powell and cases like it, you really don't get to first base on that your Honour where each stage ..."
33Although unclear, I do not accept that this submission involved the admission sought by Mr Phillips. The reference to the "independent contractual mechanism" by which Tobias Partners would be paid seems to me to suggest that what was being conveyed was that Tobias Partners did not accept that its right to payment was contingent upon complete or exact or even substantial performance by it of the relevant stage.
34It follows that I reject the contention that her Honour was bound by the pleadings to act on the basis that complete or substantial performance of Stage 2 was a precondition to there arising any obligation on the part of Mr Phillips to make payments in respect of it.
35Second, Mr Bellamy submitted that, in any event, her Honour erred in construing the Architecture Agreement as not requiring complete or substantial performance of Stage 2 before any obligation to make payments in respect of it could arise. This contention involves a question as to the proper construction of the Architecture Agreement, which is clearly a question of law (see Jennings v Credit Corp Australia Pty Ltd [2000] NSWSC 210; 48 NSWLR 709 at [11]).
36The Architecture Agreement consisted of a five page letter signed by the parties, to which there was attached a four page document which was some form of standard terms and conditions. Both of the documents had word processing problems. Section "b" of the letter was entitled "[o]ur fees". It consisted of five sub-clauses numbered 2.1 to 2.5. Clause 2.2 recited that it "appears there will be five stages in the Project", which were listed as being:
"1. Review Existing Design - Preliminary Sketch Design;
2. Resolved design concept;
3. Section 96 application;
4. Design Development and Contract Documentation;
5. Contract Administration."
37Clause 2.3 is of particular significance. It provided:
"Our typical fee if we were to have been given this project from it's [sic] conception would be 12.5% + GST, however on the basis that preliminary work has already been carried out we have reduced our fees accordingly. Fees for stages 1, 2, 4 & 5 will total 8.55% + GST of the TPC (Stage 3 will be billed at hourly rates). It is this percentage of the TPC which is payable by you regardless of the stage by stage breakdown or what the TPC might be at any time or what the actual cost of the project is at any time. The allocation of percentages in paragraph 2.4 of this letter is simply a guide to billing and does not represent an actual fee. The instalment payments of our total fees are set out in paragraph 2.5." (emphasis in original)
38Clause 2.4 then stated: "Our fees for each stage are calculated as follows ..." For stages, 1, 2 and 3, it stated:
"1. Review Existing Design - Preliminary Sketch Design
This work involves:-
a. Obtain client's brief;
b. research existing constraints - detailed site study (we require a detailed survey), implications on access, structure and services, constraints by the approval authority, review existing design and documentation;
c. initial meeting with any consultants or contractors to obtain their preliminary design input;
d. prepare analysis diagrams, initial planning and sketches;
e. obtain an initial cost estimate from a quantity surveyor (at the client's cost);
f. Seek client approval to proceed to next stage.
Our fee to complete the work in this stage will be 0.5% + GST of the TPC.
2. Resolved design concept
This work involves:-
a. Arrange and attend meetings with client, authorities and others as required.
b. Develop design concept.
c. Obtain a cost estimate update from the quantity surveyor (at client's cost).
d. presentation of resolved design concept - this will include 2D and 3D drawings, and mood board;
e. Seek client approval to proceed to next stage.
Our fee to complete the work in this stage will be 0.95% + GST of the TPC.
3. Section 96 application
Our work in this stage involves:-
a. Prepare design briefs for consultants required for the application.
b. Obtain quotations from the consultants and upon client approval engage them on their behalf;
c. Coordinate the design work undertaken by consultants with the design;
d. Design development in response to concept presentation feedback from the client and feedback from the consultants;
e. Obtain an updated cost estimate on the developed design from a quantity surveyor (at the client's cost)
f. Prepare Section 96 drawings and documentation suitable for submission to the approval authority.
Our fee for work will be charged at hourly rates." (emphasis in original)
39Clause 2.5 then stated:
"Payment of our fees
Total fees for stages 1, 2, 4 & 5 inclusive are 8.55% + GST of TPC (Stage 3 will be billed at hourly rates). That total amount is payable as follows:-
a) first instalment payable upon acceptance of these terms - the fee for stage 1;
b) balance of fees for stages 1 to 5 inclusive will be the subject of monthly invoices to you payable according to the terms and conditions attached to this letter;
c) we reserve the right to vary the TPC as the Project develops and more realistic approximations of the actual or budgeted cot of the Project emerge. Variations to the TPC will result in consequent variations of the fees." (emphasis in original)
40Section "c" of the letter identified various costs and expenses in addition to those described in section "b".
41Within the standard terms and conditions, Clause 19.1 provided that:
"The Client must pay all fees and other out-of-pocket expenses within a period of seven days from the date of invoice."
42Clause 24.1 within the standard terms and conditions conferred on either party a right to terminate the agreement by giving 20 working days notice. Clause 26.1 enabled Tobias Partners to suspend work if, inter alia, its fees remained unpaid.
43Mr Bellamy placed particular reliance on Clause 3.0 of the standard terms and conditions which provided:
"a. Tobias Partners grants the Client one license [sic] to use the design and the documents and drawings to produce the Project for which they were intended, conditional upon all of the following:-
i) the license [sic] applies only to the Site or to that part of the Site which the design relates;
ii) Tobias Partners completes the particular stage or stages of the Services for which Tobias Partners has been commissioned;
iii) fees and out of pocket expenses properly due to Tobias Partners have been paid in full."
44In my view, the critical clauses are 2.3 and 2.5 of the letter. Leaving aside Stage 3, they specify that what is payable is 8.55 percent plus GST of the total project cost "regardless of the stage by stage breakdown or what the TPC might be at any time or what the actual cost of the project is at any time". Clause 2.3 specifies that the fees listed for each stage in Clause 2.4 are "simply a guide to billing", although it must be accepted that there is an obvious tension between that statement and the statement in bold at the end of each description of the stages in Clause 2.4.
45Finally, Clause 2.3 directs attention to Clause 2.5 for specification of the instalment payments payable under the Architecture Agreement. Clause 2.5(a) identifies the instalment payable upon the acceptance of the terms of the agreement. Mr Bellamy contended that that was the only "instalment" referred to in Clause 2.5. I do not agree. In my view, Clause 2.5(b) identifies another form of instalment, namely those instalments specified in the monthly invoices. Once those invoices are issued, the obligation to pay them is imposed by Clause 19.1 of the standard terms.
46Leaving aside Stage 3, these provisions appear to specify the total level of fees payable and that they are payable in instalments, the first instalment being payable upon entry into the Architecture Agreement and the balance being payable as specified in the monthly invoices.
47Subject to considering the matters addressed next, these provisions are fundamentally inconsistent with the parties having agreed that complete performance by Tobias Partners of all of the work in the Architecture Agreement, or all of the work specified for any particular stage, was a condition precedent to Tobias Partners being able to invoice and recover any part of the contract price.
48Mr Bellamy pointed to a number of features of the Architecture Agreement which he submitted warranted a contrary conclusion.
49First, he noted the statements at the end of each of the specifications of Stages 1 and 2 in Clause 2.4 concerning what was "[o]ur fee to complete the work". I accept that the emphatic nature of those statements sits uneasily with Clause 2.3. However, that said, those statements do not state that the fees are only payable upon completion of the work.
50Second, Mr Bellamy pointed to the staged nature of the work contemplated by the Architecture Agreement. I agree that that is what is clearly suggested. There is no doubt that the work undertaken by Tobias Partners is clearly divisible into those stages, in the sense contemplated by Dixon J in Steele v Tardiani. However, the balance of the clauses that I have pointed to, in my view, make it clear that the obligation to pay any instalment or part of the fees is not contingent upon the completion of those stages.
51
Third, Mr Bellamy noted that Clause 3.0 of the standard terms and conditions precluded his client from utilising the benefit of any work done on a particular stage unless that stage had been completed and all outstanding invoices had been paid. He contended that this meant that his client could be required to make a part payment for, say, Stage 2 work but not receive any benefit for that payment as it could not use the incomplete work performed to that point as it had no licence. This contention appears to be correct. A construction which allows that to occur is not one which would easily be adopted. Nevertheless, I consider that the clauses that I have referred to, namely clauses 2.3 and 2.5, are so clear in denying that Tobias Partners' entitlement to be paid its invoices is dependent upon the completion of any particular stage, that they outweigh this consideration.
52It follows from this that I reject the first ground of Mr Phillips' appeal. This is sufficient to lead to the upholding of so much of her Honour's judgment as awarded an amount for Stage 2 in Tobias Partners' favour, and rejected Mr Phillips' claim for recovery of the amounts already paid by him in respect of Stage 2.
53For the state of completeness, I note two further matters.
54First, in relation to Mr Phillips' cross claim, had I accepted his construction of the Architecture Agreement, his ability to recover the amounts already paid for Stage 2 would be governed by the following passage from the judgment of Mason CJ in Baltic Shipping at 350:
"When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration."
55Her Honour's finding that there was not a total failure of consideration in respect of Stage 2 would have represented a further obstacle to recovery by Mr Phillips even if had he been successful in relation to ground 1.
56Second, leaving aside Stage 3, the construction of the Architecture Agreement which I prefer appears to enable Tobias Partners to issue invoices for fees that are not necessarily related to work undertaken to that point in time. Although it did not arise in this case, whether an amount so paid could later be recoverable if complete or even adequate performance was not forthcoming is a question addressed by the judgment of Mason CJ in Baltic Shipping from 351 to 353.