Shoalhaven City Council v Firedam Civil Engineering Pty Limited

Shoalhaven City Council v Firedam Civil Engineering Pty Limited - [2011] HCA 38 - HCA 2011 case summary — Zoe

[11]

A person ("the Expert"), appointed under the provisions of a construction contract ("the Contract") to provide an expert determination of issues in dispute between the principal and the contractor, made a determination which the contractor contended was not binding on it. The contractor sought a declaration to that effect in the Supreme Court of New South Wales. The contractor's complaint related to the Expert's refusal to allow certain extensions of time which it claimed as of right arising out of variations to the works. That refusal was said to be inconsistent with the Expert's use of a contractual discretion, conferred on the principal, to extend the time for completion of the works. The discretionary extension was used by the Expert, in assessing the principal's claim for compensation for the contractor's delays, to allocate responsibility for delays between the principal and the contractor. The contractor contended that the Expert's reasons for his determination, burdened with an unexplained inconsistency, meant that the determination did not accord with the requirements of the Contract and was therefore not binding on the contractor.
The contractor's summons for a declaration was dismissed by Tamberlin AJ[1]. However, an appeal against that decision was allowed by the Court of Appeal of the Supreme Court of New South Wales (Beazley, Campbell and Macfarlan JJA)[2]. The orders made by Tamberlin AJ were set aside and a declaration made that the Expert's determination was not binding on the parties. Special leave to appeal to this Court against the judgment and orders of the Court of Appeal was granted on 3 September 2010 by Gummow, Heydon and Kiefel JJ. The contractor was wound up by resolution of its creditors on 26 November 2010. The appeal is continued pursuant to leave granted by McDougall J in the Supreme Court of New South Wales on 10 December 2010. The contractor was not represented at the hearing of the appeal.
The Expert's use of the principal's discretion to extend time as a device for allocating responsibility for delay caused by the principal was adequately explained and was not inconsistent with his refusal to allow the contractor's claimed extensions of time. The appeal against the decision of the Court of Appeal should be allowed and the orders of Tamberlin AJ reinstated.

[24]

A dispute resolution procedure was set out in cll 73-76 of the General Conditions. A party to the Contract could give notice to the other party of an issue about any matter arising under the Contract[7]. Senior executives were required to attempt to resolve issues so notified[8]. An issue not able to be resolved by senior executives of the parties could be referred to an Expert for "Expert Determination"[9]. The Contract also provided that, in answer to any issue referred to the Expert by a party, the other party could raise any defence, set-off or cross-claim[10].
Firedam claimed an entitlement to variations and payment for additional works, extensions of time in relation to those works and contractual compensation in respect of the extended time. Shoalhaven asserted, by way of cross-claim[11], an entitlement under the Contract to "direct costs incurred due to delayed completion". The parties referred their dispute to Mr Neil Turner for Expert Determination pursuant to the General Conditions.
The Contract required the parties to treat the Expert Determination as final and binding if the aggregate liability of one party to the other did not exceed $500,000. If the aggregate amount determined exceeded $500,000, then either party was free to commence proceedings in respect of the determined amount within 56 days after receiving the Determination[12].
Firedam submitted to the primary judge, essentially by way of attack upon the Expert's reasons, that the Expert Determination did not accord with the Contract and that there was therefore no Expert Determination and nothing to prevent Firedam from commencing legal proceedings against Shoalhaven[13].
Schedule 6 to the General Conditions specified the procedure for Expert Determinations under the Contract. Relevantly to a claim for compensation, the Expert was required to determine, for each referred issue, whether there was any, and if so what, event, act or omission giving the claimant a right to compensation[14]. The dates of any such event, act or omission were to be identified and also the legal right which would give rise to a liability for compensation[15]. The Expert was, in the light of his answers, to state what compensation, if any, was due from one party to the other, when it fell due[16] and the interest payable[17]. The Expert was required to determine any other questions identified or required by the parties in respect of any referred issue, having regard to the nature of the issue[18]. As appears below, the Expert complied "meticulously" with these requirements.
Schedule 6 also provided for submissions and for a conference of the parties. In cl 4 it defined the role of the Expert:

[40]

Shoalhaven claimed common law damages in the amount of $783,031.60 due to delayed completion by Firedam. The Expert determined that Shoalhaven had contributed to the delay. He gave effect to that finding by exercising the discretion conferred by cl 54.6 and extending the time for completion by the amount of the delay attributable to Shoalhaven. That extension had the effect of reducing Shoalhaven's entitlement to compensation accordingly. The Expert exercised that discretion in relation to variations 10(a) and 62.
In relation to variation 10(a) the Expert had determined that out of a total length claimed of 659.5 metres of additional under-boring, Firedam was entitled to recompense with respect to 166 metres. Firedam had claimed an extension of time of 33 days. The Expert determined, on a pro rata basis, that a delay of nine days should be attributed to Shoalhaven and granted an extension in that amount under cl 54.6.
The Expert undertook a similar exercise with respect to variation 62 relating to the realignment of the pipeline route. Although Firedam had not provided any reasoned support for its claim for a 90 day extension of time, Shoalhaven had not denied that the works were delayed because of the realignment. Firedam had alerted it, in December 2006, to the need to consider realignment. By 10 May 2007, Firedam was aware that there were real difficulties associated with the original design. Shoalhaven gave approval for the realigned route on 13 September 2007. The Expert said it was reasonable to assume that the realignment was delayed for a period at least equal to the period from 10 May 2007 to 13 September 2007, amounting to 89 days. On that basis, he determined an extension of time, under cl 54.6, of 89 days in order to "disentangle" Shoalhaven's acts from other causes of delay.
In the event, the Expert determined an amount of $497,142.55 was payable to Firedam after a deduction for Shoalhaven's entitlement to damages for delayed completion. The net amount was below the $500,000 threshold specified in the General Conditions. If the determination stood, Firedam was bound by it and could not take proceedings against Shoalhaven in respect of its claims.

[61]

In relation to variation 10(a) the Expert declined to determine Firedam's claim for an extension of time which appears to have been based upon cl 52 read with cl 54. He did so because Firedam had not provided any "basis for substantiation of its claim". The Expert also found that, while the conditions which required additional under-boring were materially adverse site conditions within the meaning of cl 41, there was no entitlement to an extension of time on that account because no notice had been given under that clause.
In determining Shoalhaven's cross-claim for damages for delayed completion, the Expert considered what delays were attributable to Shoalhaven. In considering variation 10(a) he had found Firedam entitled to compensation for a total of 166 metres of under-boring out of its total claim for 659.5 metres. Firedam had also claimed an extension of 33 days, which the Expert found unsupported. Nevertheless, he took that claim as a basis for calculating a pro rata delay of nine days attributable to Shoalhaven. That assessment favoured Firedam because it took Firedam's claimed but unsubstantiated extension of time as a basis for calculating the delay attributable to Shoalhaven.
The Expert gave contractual effect to the delay attributable to Shoalhaven by exercising, at least notionally, the discretion of Shoalhaven to extend time under cl 54.6. The question whether he could exercise that power in the way he did was not in issue in the Court of Appeal.
There was no inconsistency between the Expert's finding of delay attributable to Shoalhaven and his rejection of Firedam's substantive claim for an extension of time in relation to variation 10(a). Nor was there any relevant deficiency in the explanation given in the Expert Determination of the process of reasoning adopted. Firedam was the beneficiary of an assumption in its favour.
In relation to variation 62, Firedam failed to provide reasoned support for an extension of time arising out of the necessary realignment of the main transfer pipeline. Its claimed extension of time of 90 days in connection with the proposed variation would have had to be related to the realignment requirements. Shoalhaven's delay of 89 days in responding to the clear need for realignment approval appears to have been in a different category. The use by the Expert of the discretion to extend time under cl 54.6 was again an application of that provision in favour of Firedam. By extending the completion date by 89 days Shoalhaven's claim for common law damages for delay on Firedam's part was reduced correspondingly. There was no inconsistency in the Expert's reasoning in relation to variation 62. The attack upon the Expert's reasons in the Court of Appeal should not have succeeded.

[64]

GUMMOW AND BELL JJ. After the grant of special leave on 3 September 2010, the respondent ("Firedam") was wound up on 26 November 2010. On 10 December 2010 the Supreme Court of New South Wales (McDougall J) granted leave under s 500(2) of the Corporations Act 2001 (Cth) to the appellant ("Shoalhaven") to proceed in this appeal against Firedam. However, the liquidator has played no part in this appeal and Shoalhaven thus has prosecuted the appeal in the absence of a contradictor. Several grounds are advanced by Shoalhaven, and they are of varying width in their general application to other cases. The above circumstances, and for reasons which follow, indicate that the appeal be decided in favour of Shoalhaven on a narrow ground.
On 18 October 2005 Shoalhaven wrote to Firedam that it accepted Firedam's consolidated tender dated that day for the design and construction of the Wastewater Transportation System for the Conjola Regional Sewerage Scheme; the site was located in various parts of the Conjola Lake region, the majority of which were in or near private residential properties. The time for completion of the whole of the works was 64 weeks from the date of contract. The Contract Documents (a defined term) incorporated the General Conditions of Contract of the New South Wales Government (GC21 (Edition 1)) ("the General Conditions"). This was a document of some length. Clause 41 provided for an adjustment of the Contract Price, and for an extension of time under cl 54, upon certain conditions, by reason of adverse site conditions. However, cl 55.2 stipulated that the only remedies available to Firedam for delay caused by Shoalhaven were for an extension of time and for delay costs under cl 55.1.2. For its part, Shoalhaven reserved its rights to claim "general damages" if Firedam failed to achieve completion by the Completion Date. The parties might agree to variations to the work required by the contract, but if they did not agree, cl 52.6 provided that all issues relating to the claimed variation were to be dealt with under cll 72‑75.
Clauses 72‑76 were headed "Claim and Issue resolution" and provided for the determination of issues by an Expert, who was to follow the procedure for Expert Determination in Sched 6. Subject to a qualification to which further reference will be made, the determination by the Expert was to be treated by the parties as "final and binding" and given effect to by the parties.
The issues on this appeal, from the Court of Appeal of the Supreme Court of New South Wales (Beazley, Campbell and Macfarlan JJA)[41], essentially turn upon matters of construction of the contractual documents, in particular of the General Conditions, and their application to the relevant events. There are two basic questions[42]. They are: (i) what the parties agreed that the Expert was to do; and (ii) whether the determination made by the Expert satisfied those requirements.
Clause 4 of Sched 6 to the General Conditions was headed "Role of Expert" and stated:

[71]

Disputes arose, and claims were made by Shoalhaven for damages for delayed completion, and by Firedam for extensions of time, variations and delay costs. By letter of engagement dated 10 October 2008, Mr Neil Turner was appointed the Expert to determine six unresolved issues raised by Firedam. These were identified as claims 10(a), 11, 12, 59, 62 and 143. Shoalhaven, on its part, cross‑claimed for direct costs due to delayed completion. The amended reasons of the Expert dated 17 March 2009 is a document of 84 pages and 572 paragraphs.
The determination which the reasons supported was that Firedam was to pay Shoalhaven $308,000 (including GST) for damages for late completion, and interest of $13,501.37 payable to 6 February 2009. These sums were to be carried forward to the collection, with the final result that Shoalhaven was to pay Firedam $569,595.96 (including GST), being a principal amount of $497,142.55 plus interest. This principal amount was below the contractually stipulated threshold of $500,000, above which review by litigation was permitted, and below which the determination of the Expert was final and binding.
Firedam was dissatisfied with that outcome and by Summons filed in the Supreme Court of New South Wales on 15 May 2009 it sought declarations that: (1) the determination was not binding upon it, and (2) it was at liberty to commence proceedings against Shoalhaven in respect of certain claims which it had made. One of the grounds upon which declaration (1) was sought was that the Expert had failed to give reasons complying with the obligation imposed by cl 4.1.3 of Sched 6, set out above.
Tamberlin AJ, on 12 August 2009, ordered that the Summons be dismissed, and ruled[46] that the Expert had given valid and sufficient reasons for his conclusions in the matter. However, the appeal by Firedam to the Court of Appeal succeeded and a declaration was made that the determination by the Expert was not binding upon the parties.
For the reasons which follow, the appeal to this Court by Shoalhaven should succeed and the orders by Tamberlin AJ should be restored.
There were three claims by Firedam which were dealt with in the Supreme Court, identified as claims 10(a), 12 and 62.
Clause 41.4, subject to a qualification not presently relevant, provided as follows:

[74]

Clause 54 was headed "Extensions of time". It provided in cl 54.1 that in certain circumstances Firedam would be entitled to an extension of the completion time for a number of days to be assessed by Shoalhaven. In addition, a special provision with respect to extension of time by and for the benefit of Shoalhaven was made by cl 54.6. Clause 54.6 is set out later in these reasons.
Claim 10(a) was made in respect of additional under‑boring of sheds, gardens, trees and driveways of which Firedam claimed it could not have been aware at the time of tender. By claim 12 Firedam sought an amount for additional costs incurred as a consequence of encountering extremely hard rock, this being said to be a materially adverse site condition within the meaning of cl 41. By claim 62 Firedam sought an amount for additional costs incurred as a consequence of the realignment of a mainline across the waterway at Pattimores Lagoon. Firedam succeeded in obtaining some additional costs for extra work in respect of claim 10(a) and claim 12, but it failed in relation to claim 62.
Firedam failed to obtain an extension of time in relation to claim 10(a) and claim 62, but did succeed in obtaining the claimed extension of time under claim 12. In the case of claim 12, while the Expert did allow the claimed extension of time, he did not allow delay costs. These had not been claimed and the Expert considered that there may be some allowance for delay costs in the hours claimed by Firedam for its staff.
The Expert determined that Firedam should not obtain extensions of time with respect to claims 10(a) and 62 because it had not complied with the notice provisions of cl 41.2; this had obliged Firedam to notify Shoalhaven in writing within seven days of encountering the relevant adverse site condition. Nor had Firedam complied with the requirements of cl 54, which set out various conditions to be satisfied before it was entitled to an extension of time for the number of days to be assessed by Shoalhaven. The result with respect to claims 10(a) and 62 meant that in response to any claim by Shoalhaven against Firedam for damages for delay in completion, Firedam could not say that the contractual completion date of 64 weeks, from the contract date, had been extended or postponed. Nor could Firedam claim damages under cl 55.1.2 for delay costs in respect of the number of days during which the completion date might have been extended.
The Expert did, however, return to the question of the completion date. But this was because he also had to deal with the cross‑claim by Shoalhaven for damages for delay by Firedam and to fix a time from which such entitlement should commence. The Expert considered that there were delays attributable to Shoalhaven which would have entitled Firedam to an extension of time had it complied with the conditions precedent to obtaining that extension. He determined in par 533 of the reasons that the contractual completion date should be further extended by a total of 120 days:

[81]

His Honour restated that conclusion in the fourth last paragraph of his reasons, and then said that he considered that the Expert had "given valid and sufficient reasons for his conclusions".
The Court of Appeal allowed the appeal essentially on the ground that the Expert had not given reasons as required by cl 4.1.3 of Sched 6 to the General Conditions and that this was so because: (i) the determination contained conflicting decisions on two issues, and (ii) the reasons did not explain how this had arisen. In particular, there was said to be an "inconsistency" between the rejection by the Expert of the claim by Firedam to an extension of time for claim 10(a), and the exercise of the power in cl 54.6, so that Firedam was left in a state of ignorance as to why its delay costs claim in claim 10(a) was rejected. Thus, the Expert had failed to give "proper reasons" for his decision.
The short answer is that cl 54.6 is expressed to operate for the benefit of Shoalhaven and is distinct from the provision in cl 54.1 respecting the entitlement of Firedam[47]. It is clear from the reasons given by the Expert that the extension of time was granted under cl 54.6 to provide a starting point for the determination of Shoalhaven's claim for damages, an issue factually and conceptually distinct from any entitlement of Firedam to an extension of time under cl 54.1.
The primary submission by Shoalhaven is to this effect and should be accepted. It alternatively submitted that it would have been sufficient compliance with the task entrusted to the Expert that he gave clear reasons for the course he took, even if this was one on which different minds could have taken different views or even if the course he took was erroneous. It is unnecessary to consider this alternative submission.
The appeal should be allowed with costs, the orders of the Court of Appeal made 19 April 2010 set aside and in place thereof the appeal to that Court be dismissed with costs.
HEYDON J. It is unfortunate that this appeal will not decide the issues which arise in relation to the construction of the requirement in cl 4.1.3 of Sched 6 to the contract in question that the Expert's certificate was to state his determination "giving reasons". That is because, although in form they present themselves as only relating to the construction of a particular standard form contract, they have a much wider significance. They are extremely important. If ever those issues are examined in this Court, the written and oral submissions advanced in this appeal by the appellant will be a valuable reference source. But a decision ex parte on particularly important legal questions is an evil to be avoided as far as possible. Even if an ex parte decision is binding, it is extremely vulnerable to overruling in a later case which is fully argued. In a practical sense an ex parte decision could not settle the law. The same is true, a fortiori, of dicta on questions of that kind. Hence the better course in the circumstances is to say nothing about them.
The Court of Appeal of the Supreme Court of New South Wales erred in considering that the determination was internally inconsistent and in departing from the contrary view of Tamberlin AJ. That contrary view of the somewhat confusing factual and contractual position is correct for the reasons which Tamberlin AJ gave[48]. The appeal must be allowed with costs.

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