Relative Mirait Services Pty Ltd v Midcoast Under Road Boring Pty Ltd

Supreme Court of NSW|2012-08-09|Before: Latham J, Jordan CJ

Judgment 1The plaintiff seeks leave to appeal from the decision of Buscombe LCM, delivered on 30 September 2011, pursuant to s 40(1) of the Local Court Act 2007 (the Act). The defendant in this appeal was successful below in obtaining approximately $30,000 from the plaintiff, arising out of the performance of boring works under the Gloucester River in March 2009 at the request of the plaintiff. 2The summons sets out 15 grounds of appeal, which were conveniently grouped under four headings at the hearing of the appeal. Those four issues are :- (1)Whether his Honour erred in finding an implied term of fact in the agreement between the parties, namely that the risks arising out of the failure to obtain a geotechnical report were to be borne by the plaintiff (grounds 1 to 8). (2)Whether his Honour erred in finding a further implied term of fact in the agreement between the parties, namely that in the event of an inability to complete the task on the part of the defendant, the plaintiff would communicate with the defendant on the subject of termination of their agreement (grounds 9 to 12). (3)Whether his Honour erred in finding that the defendant was ready, willing and able to complete the agreement (ground 13). (4)Whether his Honour erred in his approach to unjust enrichment and quantum meruit (grounds 14 and 15). 3It is apparent from the way in which the plaintiff has framed its case on the appeal that the alleged errors of mixed fact and law are said to arise from the magistrate's findings of fact with respect to the terms of the agreement and the defendant's willingness to complete it. It is appropriate therefore to re-visit the relevant principles. 4There is no appeal to this Court from the Local Court on questions of fact. A wrong finding of fact, even a perverse finding of fact that is against the weight of the evidence, does not elevate such an error into an error of law. In Australian Gaslight Co v Valuer-General (1940) 40 SR (NSW) 126, Jordan CJ summarised the relevant principles thus (at 138) : - (3) A finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal, upon which the finding is based, are capable of supporting its finding, and there is evidence capable of supporting its inferences. (4) Such a finding can be disturbed only (a) if there is no evidence to support its inferences, or (b) if the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences, or, (c) if it has misdirected itself in law. 5See also Poricanin v Australian Consolidated Industries Ltd [1979] 2 NSWLR 419; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139; Mahony v Industrial Registrar of New South Wales & Anor. (1986) 8 NSWLR 1; Haines v Leves & Anor.(1987) 8 NSWLR 442; Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321; Gangemi Holdings Pty Ltd v Salter [1999] NSWSC 1004; Carr v Neill [1999] NSWSC 1263; State Rail Authority v Smith [2000] NSWSC 334.

The Evidence Before the Magistrate. 6The evidence below was in a narrow compass. A statement of agreed facts became Exhibit 1. It was supplemented by evidence from the defendant's principals, the plaintiff's principal and the project supervisor (Mr Sadler). 7The plaintiff was engaged by Telstra to undertake construction of a conduit for fibre optic cable which was to provide telecommunications services to Gloucester. The plaintiff in turn subcontracted the boring of the tunnel for the conduit to the defendant. 8The defendant first quoted for the job in October 2008. That quote included the provision of a geotechnical report and a feasibility study. It provided a rate for boring through soil only and a rate for boring through rock. In March 2009, the plaintiff requested the defendant to resubmit the quote without the rock rate, on the basis that drilling through rock would be treated as a variation. The plaintiff also requested the defendant to remove the geotechnical report and feasibility study items, even though the defendant's principal, Mr Kiddle, had strongly recommended a geotechnical report. 9On or about 5 March 2009 the plaintiff accepted the defendant's revised quote and entered into a contract with the defendant to perform the boring works under the Gloucester River. The plaintiff sent a job purchase requisition dated 5 March 2009 to the defendant which described the job as a directional bore of 170 metres through "other than rock" (OTR) at $75 per metre and a rock rate of $290 per metre. The words "all works must be completed by COB 13/3/09" appeared at the bottom of the document. 10The hearing below was conducted on the basis that the quote and the job purchase requisition together constituted the agreement between the parties. It was also common ground (Statement of Agreed Facts) that there were three express terms of the agreement. The first two were the respective rates for boring through rock and other than rock. The third was that payment was to be made within 30 days. It was however submitted below by the plaintiff's representative (as it is now submitted) that the completion of the works by 13 March was an essential term of the contract. 11The defendant commenced work on 9 March 2009. On that day the defendant hit rock at a depth of approximately 2 metres. The plaintiff's employee, Mr Sadler, gave the defendant approval to continue the works through the rock. The defendant then completed approximately 90 metres of boring through the rock. 12On 10 March 2009 whilst undertaking the works, the defendant experienced a loss of mudflow and lost the railhead and mud motor from its boring equipment. As a result, the defendant became concerned that the works might cause environmental damage. 13On 10 March 2009, the defendant advised the plaintiff that environmental damage to the Gloucester River was likely if they continued the works. The plaintiff's representative told the defendant to suspend the boring. The next day, the defendant again contacted the plaintiff and asked for a meeting with Telstra in anticipation of being able to remedy the problem. 14An on-site meeting took place on 16 March between the plaintiff, the defendant and Telstra, wherein Telstra decided that the works should remain suspended until further notice. As at that date the works were only partially completed. The boring work carried out by the defendant had failed to link the pits on each side of the river. Furthermore, the hole that had been bored was not secured with conduit. 15Also on 16 March, the defendant's representative sent an email to the plaintiff, wherein the defendant proposed four options to allow the works to proceed. The first option suggested that the plaintiff and Telstra secure the permission of the Environmental Protection Agency to continue the works. The second option suggested the possibility of boring under the river while it was in flood. These two options envisaged using the existing part-completed bore. The third suggested the provision of a geotechnical report and the installation of steel casing. The fourth option suggested connecting the fibre optic cable to the bridge. The email ended with the words "please review and provide direction as to required method to complete project". 16On or about 22 May 2009, in the absence of any further communication from the plaintiff, despite repeated requests for instructions from the plaintiff, the defendant issued a tax invoice to the plaintiff in the amount of $23,760.00. 17On 4 June, the plaintiff sent a pro forma document to the defendant rejecting the defendant's claim. The reasons for that rejection were enumerated as closure of the project by Telstra, the defendant's failure to formally document the variation request for drilling through rock which was approved orally by Mr Sadler, and the fact that the invoice exceeded the purchase order (only because written authorisation of the variation for drilling through rock was not obtained). Mr Sadler acknowledged under cross examination that the latter two reasons were without foundation in the circumstances of this case. He also acknowledged that there was nothing in the quote or the job requisition that made payment of the defendant provisional upon payment by Telstra to the plaintiff. The letter of 4 June said nothing about completion of the works by 13 March. 18Mr Sadler's evidence was that the failure on the plaintiff's part to give further instructions to the defendant was a product of the absence of instructions from Telstra to the plaintiff. Mr Sadler further agreed that as at 4 June, Telstra had not "closed the project". However, Telstra withdrew funding from the plaintiff at the end of March. 19On 14 June 2009, the defendant sent a letter to the plaintiff reminding the plaintiff that Telstra was not a party to the agreement between them and indicating that the defendant was awaiting instructions from the plaintiff in order to complete the works. 20On 24 August 2009, the defendant's solicitors wrote to the plaintiff advising that the defendant required further direction within seven days in order to complete the works. The letter also noted that, in the absence of payment of the invoice within fourteen days, the plaintiff was in fundamental breach of the agreement. 21The dispute remained unresolved. On 2 September 2010, the defendant's solicitors formally terminated the agreement with the plaintiff. The plaintiff's solicitors responded by way of letter dated 6 September 2010, which included (for the first time) a statement to the effect that it was an "essential feature" of the agreement that all the works be completed by 13 March 2009. This letter also asserted (for the first time) that the plaintiff was not liable to make any payment to the defendant in the absence of payment from Telstra. 22In or about September 2010, the plaintiff contracted with another firm to complete a bore under the Gloucester River. In the meantime, Telstra had adopted a temporary measure of running the cable along the bridge. This was one of the options proposed by the defendant in its e-mail of 16 March 2009. The plaintiff did not pay the tax invoice or any other amount to the defendant for the work performed.

The Magistrate's Reasons Re Issues (1) and (2) (Grounds 1 - 12). 23The magistrate posed the issues for resolution in the following terms :- A. What, if any, are the implied terms of the agreement? B. Was the agreement an entire contract? If the agreement was an entire contract, was there partial performance by the [defendant]? If so, what is the effect of partial performance? C. Has the [defendant] established a claim pursuant to quantum meruit/unjust enrichment principles? 24In resolving the first issue, the magistrate applied Byrne and Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 422. The magistrate recognised that the court should only imply a term of the contract by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the term is necessary to the reasonable effective operation of the contract. 25Having regard to the fact that the defendant insisted that it was necessary to obtain a geotechnical report to ensure the success of the bore, and that one was not obtained because of the refusal of the plaintiff (acting on instructions from Telstra) to pay for such a report, the magistrate concluded that the prima facie rule that the promisor takes the risk of an unfortunate event was displaced. Accordingly, the magistrate determined that the risk associated with the failure to obtain a report was intended by the parties to be borne by the plaintiff. 26The magistrate further considered that an implied term of the agreement was that the plaintiff would communicate with the defendant about how the defendant was to complete its obligations under the agreement, in the event that the defendant could not complete the bore, arising out of a difficulty that may have been averted by a geotechnical report. The magistrate arrived at this implied term on the basis that it was necessary for the effective operation of the agreement. 27The magistrate rejected any implied term that the defendant was to be paid a progress payment in the event that the works were not completed. The magistrate considered s 13 of the Building and Construction Industry Security of Payment Act 1999. (It was not disputed that this Act applied in the circumstances of this case.) That section relevantly provides :- 1) A person referred to in section 8 (1) who is or who claims to be entitled to a progress payment (the "claimant") may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. (2) A payment claim: (a) must identify the construction work (or related goods and services) to which the progress payment relates, and (b) must indicate the amount of the progress payment that the claimant claims to be due (the "claimed amount"), and (c) must state that it is made under this Act. 28Given the mandatory terms of subsection 2 of s 13, the magistrate determined that the defendant's invoice did not comply in that respect and that accordingly any claim by the defendant under the terms of the Act ought to fail.

The Plaintiff's Argument on Issues (1) and (2). 29In respect of the first implied term set out at [25] above, the plaintiff's submission on the appeal was that the term was not pleaded by the defendant and was not raised until the plaintiff's closing submissions, at which time the magistrate canvassed it for the first time. It was submitted that the plaintiff's representative was not able to meet this aspect of the case. This is said to be a denial of procedural fairness and therefore an error of law. 30Furthermore, the plaintiff maintains that the magistrate applied the wrong test, that is, the test propounded in Byrne rather than the test established by BP Refinery (Westernport) Pty Ltd v Shire of Hasting (1997) 180 CLR 266 at 282 - 283. The plaintiff acknowledges that the Byrne test is applicable if "a contract is oral or partly oral or where it is apparent that the parties had never attempted to reduce the agreement to complete written form." However, the plaintiff maintains that it was nonetheless necessary for the magistrate to have considered the matters set out in BP Refinery, namely that the term must be reasonable and equitable, it must be necessary to give business efficacy, it must be so obvious that "it goes without saying", it must be capable of clear expression, and it must not contradict any express term of the contract. 31The plaintiff submitted that the agreement was efficacious without requiring the implication of any other term and that it was effective and workable under the prime face rule that the promisor bears the risk. It was submitted that there was no evidence that a geotechnical report would have ensured the success of the bore, so that this finding also constituted an error of law. 32It was also submitted that the evidence of Mr Kiddle, the quotations and the emails, which established the defendant's insistence on a geotechnical report, ought not have been admitted or relied upon, because they constituted evidence of negotiations between the parties. This evidence was never objected to by the plaintiff's representative below. Upon a proper consideration of this evidence, it simply provided the context within which the quotation came to be accepted by the plaintiff. This submission needs no further consideration. 33With respect to the second implied term, the plaintiff submitted that, rather than imply the term as a matter of fact, the magistrate had in fact relied upon an implied term of law, that is, the duty to co-operate. The plaintiff's written submissions on this ground criticise the magistrate's failure to base the implied term of co-operation on necessity. 34In addition, the plaintiff submitted that the second implied term found by the magistrate was different from the implied term pleaded by the defendant, such that it provides "a strong indication that the second implied term found by his Honour was neither obvious nor necessary and lacked clarity." The plaintiff further submitted that there was no evidence that the difficulty that arose was due to the absence of a geotechnical report and that this also constituted an error of law. Finally, the plaintiff submitted that the second implied term directly contradicted an express term of the contract that works must be completed by 13 March 2009.

Disposition 35A reading of the transcript of the proceedings below discloses that the plaintiff's representative raised the question of assumption of risk in the course of opening the defence case [at T/S 30.28] :- This matter is primarily about the assumption of risk and which party to the contract assumes the risk. It is undeniable that the works involve the risk of environmental damage, its inherent in that kind of project. We say that the ordinary rule of law that applies to these circumstances is that the boring contractor, the promisor under the contract, assumes the risk, unless there is an express term in that contract to the contrary. So we say that there is an implied assumption of risk on the part of the [defendant]. Furthermore, we say that the contract was an entire contract, in that it required the completion of an entire series of works. 36Furthermore, at T/S 96, the plaintiff's representative says :- My friend has stated that an implication of an assumption of risk does not arise, I disagree. The amended statement of claim at paragraph 6 pleads that the [defendant] could suspend the works and seek instructions from the [plaintiff] if there was the potential of causing environmental damage. That inferred to us that the risk of environmental damage was assumed either by implication or determined through law or by agreement by the [plaintiff]. 37These passages demonstrate that, far from being taken by surprise in relation to the first implied term, the plaintiff's representative below in fact squarely raised the issue and met it in the course of submissions on at least three occasions. Firstly, at T/S 79, the plaintiff's representative says :- that prima facie, a promisor takes the risk of an event happening which prevents him from performing his promise. .... It may be displaced, and it may be displaced by an express term in the contract to the contrary, ..... 38Secondly, at T/S 81, in the course of referring the magistrate to BP Refinery, the plaintiff's representative says :- to give business efficacy to a contract, I would suggest that a term imposing risk on one particular party because of the failure to acquiesce to the demands of another party, I would suggest that would result in an unworkable situation that the rule in the BP Refinery case is intending to avoid. 39Thirdly, at T/S 84 the plaintiff's representative repeats the assertion that there was an implied assumption of risk on the part of the defendant, namely that they would fail to complete the bore. He went on to say that :- they knew that there was a risk of environmental damage associated with the work, they were aware that if there was that risk they would have to stop the works. It was clearly within their contemplation. 40There was no denial of procedural fairness and accordingly, there is no merit in this aspect of the plaintiff's appeal. 41It is also tolerably clear that the magistrate was well aware of the test established by BP Refinery. It was the subject of submissions put to him by the plaintiff's representative. 42The reference to Byrne in the course of the magistrate's reasons was entirely correct in the circumstances of this case. Under the heading "implied term", the following appears at 422 in the judgment of Brennan CJ, Dawson and Toohey JJ :- The implication which the appellants seek to make is based upon the presumed or imputed intention of the parties. In that context the remarks of the majority in the Privy Council in BP Refinery ... are frequently called in aid. [The five criteria in BP Refinery are then set out.] In laying down those criteria, it was recognised that there was a degree of overlap. Further, as Deane J has observed, the cases in which the criteria in BP Refinery ... have been applied in this Court are cases in which there was a formal contract, complete on its face. He pointed out that the rigid approach should be avoided in cases, such as the present, where there is no formal contract. In those cases the actual terms of the contract must first be inferred before any question of implication arises. That is to say, it is necessary to arrive at some conclusion as to the actual intention of the parties before considering any presumed or imputed intention. And the test to be then applied was in a later case formulated by Deane J in these terms :- The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, the court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. 43There was no formal contract in the instant case, in the sense that the written terms of the contract consisted entirely of a quotation and a job requisition document. The parties to the agreement had not spelt out the full terms of the contract. The plaintiff's representative below could hardly have submitted otherwise given the submission that there was an implied term that the defendant assumed the risk of failing to complete the bore. 44The magistrate did not find that the availability of a geotechnical report would have ensured the success of the bore. The magistrate correctly summarised the effect of the evidence from the defendant's principal, which was not materially contradicted by the plaintiff, namely that "the [defendant] consistently indicated that in its opinion it was necessary to obtain a geotechnical report to ensure the success of the bore". 45Mr Kiddle's evidence was that in late February or early March 2009, he said to a Telstra representative on site "I think you should get a geotechnical report done. ..... I will also need to bore deeper than normal below the river to reduce the risk of environmental pollution occurring". Mr Kiddle emphasised the need for a report because of his experience of boring under river beds with the attendant risk of environmental damage. He had a further conversation with a representative of the plaintiff in March 2009 before work had commenced. In that conversation, Mr Kiddle "strongly recommended" a report because of the likelihood that, without one, he would be drilling through rock. The additional time and expense required to drill through rock, and the heightened risk of environmental damage, would inevitably compromise the completion of the works within the terms of the agreement. 46Mr Kiddle also contacted Gloucester Shire Council to ascertain the depth of the river rock. He deposed to the fact that he undertook the works on the basis that if any contamination occurred, the works would be suspended pending further advice from the plaintiff. That expectation was met to the extent that the plaintiff agreed that work should cease when the risk of environmental damage materialised. 47The agreement was obviously not effective if the prima facie rule applied, that is, that the defendant would bear the risk of an event occurring which would defeat completion of the works. The defendant clearly notified the plaintiff that it could not bear that risk unless a report was provided. 48The second implied term followed logically from the first. There is nothing in the magistrate's reasons which persuade me that his Honour based the second implied term upon the duty to co-operate. The plaintiff refers to an exchange in the transcript where its representative concedes that "there is an implied term in contracts of co-operation but in my opinion that is as far as it goes". The magistrate then observes that, on the evidence, there was no co-operation on the part of the plaintiff. However, the transcript does not constitute the reasons for judgment. Accordingly, there is no utility in delving further into the legal prerequisites for implying a duty to co-operate. 49The difference between the second implied term of fact found by the magistrate and that pleaded by the defendant does not establish that the term found by his Honour was "neither obvious nor necessary". In any event, there is little substantive difference between them. On the one hand, his Honour found an implied term requiring the plaintiff to communicate with the defendant. The pleadings alleged an implied term that the defendant would seek further instructions from the plaintiff. Both proceeded from the undisputed fact that the parties were aware of the potential for environmental damage arising out of the boring works and that the works would have to be suspended if that contingency arose. Logically, some communication in the form of further instructions from the plaintiff was necessary if the agreement was to be carried out. 50Finally, there is no merit in the submission that the second implied term was contradictory of the term that the works be completed by 13 March. Over 9 and 10 March, the defendant completed 90 metres of the 170 metre bore. The defendant was authorised by the plaintiff to suspend the work on 10 March. On 11 March, the defendant asked for a site meeting to resolve the problem. The failure on the part of the plaintiff to supply the defendant with timely instructions to allow it to complete the outstanding 80 metres of the bore constituted a repudiation of the agreement. Whilst the plaintiff also takes issue with this finding by the magistrate, on the basis that it was not the repudiation pleaded by the defendant, I am not persuaded that such a finding was not available to his Honour. It is not the law that a judicial officer is bound by the parties' pleadings with respect to findings of fact and/or at law. 51Grounds 1 to 12 of the appeal fail.

The Magistrate's Reasons and the Argument Re Issue 3 (Ground 13). 52At [50] of the judgment his Honour said :- While the agreement was in my opinion an entire agreement, I am of the opinion, consistent with what Starke J said in Phillips, that the reason the work was not completed was the fault of the [plaintiff]. The [defendant] stood ready and willing to complete the agreement and proposed three methods of doing so. There is no evidence that the methods [the defendant] proposed were not feasible methods of completing its obligations under the agreement. ....... The [plaintiff] never engaged with the [defendant] about how the work was to be completed because Telstra had decided not to pay the [plaintiff]. 53The plaintiff takes issue with this finding on the basis that the defendant did not prove its willingness to complete the agreement, rather it attempted to seek agreement to a variation of the contract when the time for completion had passed. The plaintiff goes further and submits that the magistrate made a finding in the absence of evidence and drew an inference from the facts that could not reasonably be drawn.

Disposition 54Once again, the plaintiff's argument completely overlooks the statement of agreed facts and the uncontradicted evidence adduced at the hearing. That evidence clearly established that the works were suspended with the agreement of the plaintiff on or about 10 March 2009. The only reason that the defendant was unable to complete the agreement within the time originally proposed was because of the actions (or lack thereof) of the plaintiff. This was a finding that was reasonably open to the magistrate and did not require the drawing of an inference. Proof of the defendant's willingness to complete the contract was inherent in the defendant's request for a site meeting and its proposed methods for completing the works. 55There is no merit in this ground. 56The consequences of the plaintiff's failure on these grounds of the appeal renders it unnecessary for any further consideration of grounds 14 and 15, which deal with the alternative basis of the defendant's claim below, namely quantum meruit and unjust enrichment. 57Furthermore, the plaintiff's grounds in essence sought to re-agitate findings of fact and inferences drawn from those facts which were entirely open on the evidence. In my view, no question of mixed fact and law was raised by the appeal. In these circumstances, I would refuse leave on all grounds. 58Whilst the plaintiff's failure on the appeal renders the defendant's cross-appeal moot, it is appropriate that I briefly address the magistrate's treatment of the defendant's claimed entitlement to progress payments under the Building and Construction Industry Security of Payment Act 1999. 59It was conceded by the parties and accepted by his Honour that the agreement between the plaintiff and the defendant was a "construction contract" under the Act. 60Section 8 of the Act creates a statutory right to progress payments. Section 8 relevantly provides that :- (1)On and from each reference dated under a construction contract, a person : (a)who has undertaken to carry out construction work under the contract or (b)............................... is entitled to a progress claim. (2)In this section, reference date, in relation to a construction contract means : (a).......................... (b)if the contract makes no express provision with respect to the matter- the last day of the named month in which the construction work was first carried out ............ under the contract and the last day of each subsequent named month. 61Applying the terms of this provision, the defendant had a statutory entitlement to a progress payment as and from 31 March 2009. By way of distinction, s 13 of the Act establishes a procedure for prompt adjudication of payment claims. 62The distinct functions performed by s 8 and s 13 of the Act appear to have been overlooked by the magistrate. A failure to comply with the strict terms of s 13 does not deprive a party of the statutory right to a progress payment under s 8, or for that matter the right to enforce such a progress payment claim other than through adjudication. A failure to comply with the terms of s 13 disentitles a party from taking advantage of the rights established under s 15 and s 16 of the Act to speedy payment of the progress payment and the timely resolution of any contested amounts through adjudication. 63Having reached the conclusion that there was an implied term that the plaintiff was to communicate with the defendant in the event that the works were suspended through no fault of the defendant, the magistrate ought to have accepted the necessary antecedent implied term, namely that the works would be suspended in the event of potential environmental damage occasioned by the continuation of the works. It then follows as a matter of business efficacy that in the event of a suspension, the defendant was entitled to a progress payment for the work that had been undertaken to date. It could not be seriously maintained that such an implied term was not reasonable in the circumstances of the agreement, nor that it was not obvious, given that any company undertaking such expensive and hazardous works could not be expected to perform them gratis. 64The formal order is :- (i)Leave to appeal refused. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 April 2013

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