Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd

District Court of NSW|2021-07-15

BACKGROUND

The plaintiff ("Smiths") is a building company. It supplied building services to the defendant ("Brisull"), acting as its subcontractor, between December 2019 and February 2020. It issued two invoices (on 2 and 17 February 2020) for the aggregate sum of $38,815.80, which sum has not been paid by the defendant. On 28 April 2020, Smiths commenced this proceeding, in the Local Court of New South Wales (Penrith) and sued the defendant for that debt. The total sum claimed, of $40,335.67 included provision for interest and fees.
Brisull denied the debt on the basis of a set-off arising from facts set out in a counterclaim. Brisull's own cross-claim was quantified in the sum of $165,449.54. This claim is based upon two actions. First, overpayments by Brisull made as a result of breach by Smiths of two separate oral agreements, in which it agreed to act as a sub-contractor to perform maintenance work for Brisull, in May 2017 and in November 2019, respectively. These were what the parties referred to as the 'EPM engagement' and the 'TransGrid engagement', respectively. The two invoices constituting Smiths' debt claim arose from the TransGrid engagement. Secondly, Brisull also alleged in its cross-claim that Smiths performed defective works in relation to two discrete gates at the TransGrid sites.
Because of the quantum of Brisull's contractual claim for damages for breach of those agreements, the proceedings in the Local Court were transferred to this Court.
The real issues in dispute centre upon the terms for payment by Brisull of the two subcontracting engagements. Brisull contends that it overpaid many of the amounts that it paid to Smiths because of the invoices the latter had issued in relation to the EPM engagement and the TransGrid engagement. The parties agreed that for both engagements, Brisull and Smiths agreed that the former would pay the latter an hourly rate and a per diem (ie daily) allowance. What is contentious is Brisull's assertion that Smiths was obliged to pay to its workers the same hourly rate and per diem allowance that Brisull agreed to pay to Smiths.

OUTLINE OF THE FACTS

Mr Wayne Smith is the director of Smiths. Mr Robert Britt is the managing director of Brisull. Mr Shannon Keith was the operations manager of Brisull.
The following facts are taken from the parties' respective chronologies supplied at the outset of the hearing to assist the Court. Much, but not all of them, is uncontroversial and I propose to indicate where facts are disputed.

The EPM engagement

In March 2017, Mr Britt says he met Mr Smith in Brisull's Gladesville office. This was the day when, according to Brisull, agreement was reached on rates and allowances. Smiths disputes these contentions.
Prior to May 2017, Mr Smith says that he met with Mr Keith to discuss Smiths undertaking work for Brisull. According to Mr Smith (Mr Keith did not give evidence) they verbally agreed that Smiths would assist Brisull to undertake maintenance works at corrective facilities across New South Wales at an hourly rate of $90 per man and a $200 per diem allowance. Brisull disputes that agreement was formed that day and says that it was reached in March 2017. Smiths says it engaged various subcontractors to do this work: Damien Gillespie, Gordon Klopf, Nicholas Klopf and DC Labour.
Over 21-22 May 2017, Mr Smith and Mr Gillespie attended Bathurst Correctional Centre to meet Mr Keith and Mr Britt. Smiths says that this was the first day of work under the EPM engagement.
On 24 May 2017, Mr Keith sent Mr Smith an email enclosing a purchase order and blank time sheet with instructions that they be submitted with each invoice.
In his affidavit sworn 3 December 2020, Mr Britt deposed that by the middle of June 2017, he first became aware that Smiths was paying its subcontractors at rates that were different to those which Brisull paid to Smiths.
On 7 December 2017, Smiths performed the last day of work for which it charged Brisull in connection with the EPM engagement. It issued to Brisull an invoice for the sum of $3,610, which was paid on 21 December 2017.

TransGrid engagement

Mr Smith says that he had several telephone calls with Mr Keith in about the middle of November 2019 concerning Smiths agreeing to work, for Brisull's benefit, at TransGrid sites, at the same rates charged under the EPM engagement, plus a kilometre rate, travel time and materials cost.
On 22 November 2019, Mr Keith asked Mr Smith and Smiths' subcontractors to attend the Eastern Creek TransGrid site for training. That training occurred on 27 November 2019.
On 28 November 2019, Mr Smith and Mr Britt had a conversation at the Canobolas Hotel in Orange. They accept that it was at least agreed that Smiths would assist Brisull with various maintenance works to TransGrid sub-stations throughout NSW and they each believed that they had agreed on rates and allowances. Mr Smith says that there was a verbal agreement to vary the rates that had been agreed in mid-November 2019, so that Smiths was to be paid $90 per hour for labour and each sub-contractor paid $85 per hour. Brisull argues that the TransGrid engagement was only reached on 28 November 2019.
In late November 2019, Mr Britt deposed to having a conversation with Mr Alan Murray, one of Smiths' subcontractors, which he deposed to also having occurred outside the Canobolas Hotel, in which Mr Murray informed him that he was only receiving a per diem allowance of $50.
In January 2020, Mr Britt deposed to discovering that two of Smiths' subcontractors, Gordon and Nicholas Klopf, were sleeping on the side of the road, whilst engaged by Smiths and were only receiving a per diem allowance of $50. Gordon and Nicholas Klopf had been attending various TransGrid sites for Smiths from 12 December 2019 to 21 January 2020.
On 10 January 2020, Karen Britt (Brisull's accounts and administration manager and Mr Britt's partner) sent an email to Ms Xenia Kyriacou (Smiths' office assistant) confirming the terms of agreement between the parties with respect to hour charge rates and per diem rates.
On 31 January 2020, Mr Britt deposed to conducting a detailed analysis of Smiths' invoices issued to Brisull under the TransGrid engagement.
On the same day, Mr Keith asked Mr Smith to go to the Belrose Radio Repeater Station to fix a broken lock.
On 2 February 2020, Smiths issued invoice 121219.10 (the 'first unpaid invoice') to Brisull for work performed by Gordon and Nicholas Klopf between 12 December 2019 and 21 January 2020.
On 17 February 2020, Smiths issued invoice 17022020 (the 'second unpaid invoice') to Brisull for work performed by Mr Smith at the Belrose Radio Repeater Station.
On 4 March 2020, Mr Smith and Mr Keith exchanged emails in which Mr Smith pursued payment. Mr Keith promised payment as soon as Brisull was paid by Brookfield.
On 11 March 2020, Mr Britt and Mr Keith had an internal Brisull meeting. Mr Britt deposed to informing Mr Keith of his concerns that Smiths was underpaying its workers.
On the same day, Mr Smith and Mr Britt had a telephone conversation. According to Mr Smith, Mr Britt asked that the hourly rate and invoices be renegotiated but, in response to that, Mr Smith stated that the invoices stood as issued. According to Mr Britt, he advised Mr Smith of his concerns regarding Smiths' workers being underpaid.
On 16 March 2020, emails were exchanged between Ms Kyriacou and Ms Britt in which the former followed up on the first and second unpaid invoices.
Throughout March 2020, Mr Britt deposed to conducting a detailed analysis of the invoices issued by Smiths in relation to each of the EPM and TransGrid engagements.
On 30 March 2020, Ms Britt indicated that the first and second unpaid invoices and the subcontractors involved in the TransGrid engagement were under review.
Smiths commenced the legal proceeding on 28 April 2020. During the course of the proceeding, Smiths produced invoices which its subcontractors had issued throughout the EPM and TransGrid Engagement. Mr Britt has compared those with the invoices which Smiths issued to Brisull.

SMITHS' CLAIM IN DEBT

On the pleadings, Brisull's only defence to Smiths' action in debt arising from the two unpaid invoices was its defence of set-off; itself arising from its cross-claim. For the avoidance of any doubt, though, Mr Britt confirmed in cross-examination, that he took no issue with the fact that services were rendered which, but for Brisull's claim against Smiths, justified the issue of the invoices.

Mr Smith's evidence

Mr Smith's evidence comprised an unsworn witness statement dated 27 October 2020 (whose correctness he adopted when he gave evidence) and three affidavits affirmed on 23 December 2020, 7 July 2021 and 15 July 2021 respectively.

The EPM engagement

In his witness statement, Mr Smith stated that he met Mr Shannon Keith a short time prior to May 2017. Mr Keith asked him if Smiths was interested in doing works at Correctional Services facilities, which he described as general refurbishment and repair work and asked what Smiths' hourly rate would be for labour. Mr Smith says he informed Mr Keith that it would be $90 per man. Mr Keith proposed that Brisull could pay $90 per hour per man and $200 per day, per man living away from home allowance and would reimburse Smiths for any out of pocket expenses. Mr Smith said that that was "ok by me"; to which Mr Keith responded that he would organise a time for Mr Smith to meet Brisull on site to inspect the proposed works and would then send Smiths a purchase order.
On 24 May 2017, Mr Keith emailed Mr Smith a purchase order for hourly rates at the correctional centre, which set out an hourly rate, "each man" of $90 and a per diem 'living away allowance' of $200; with such allowance inclusive of accommodation, meals and travel (and fuel).
In reliance upon this discussion, Mr Smith says he engaged subcontractors, being Nicholas and Gordon Klopf, carpenters; Damien Gillespie, a labourer; and hired labour from DC Labour Hire (being Barry McKinley, Ciaran Morgan and Robert Hardy, all carpenters).
At the hearing, Mr Smith denied Mr Britt's evidence of a conversation with him about payment terms, which the latter said occurred on 24 March 2017 in Brisull's Gladesville office. After having given evidence, Smiths was granted leave to reopen its case for the purpose of reading Mr Smith's affidavit of 15 July 2021; in which Mr Smith deposed to having no meeting with Mr Britt on 24 March 2017; and annexed a diary note of that date which, although it contained entries referable to other things, made no reference to any meeting with Mr Britt that day. There was no cross-examination of Mr Smith on that affidavit.

The TransGrid engagement

In his witness statement, Mr Smith stated that Mr Keith rang him in mid-November 2019 and asked him if he was interested in his company going around NSW to check and fix gates on TransGrid sites. Mr Keith had explained that gates had come loose and needed to be fixed for safety reasons. Mr Keith asked him what rates Smiths would charge. Mr Smith stated that he told Mr Keith that Smiths would charge the same rates as Smiths had been paid for the Correctional Services contract (the EPM engagement) plus a kilometre rate and travel time plus any materials that may have to be purchased for the job.
He stated that Mr Keith had asked Mr Smith to supply the kilometre rate. In response to this, Mr Smith checked the ATO website and saw a rate of 0.68 cents per kilometre and quoted this rate to Mr Keith. According to Mr Smith, Mr Keith accepted this rate.
Mr Smith stated that on 22 November 2019, Mr Keith asked Mr Smith and his crew to attend the TransGrid site at Eastern Creek for training.
Mr Smith accepted that he met with, and spoke with, Mr Britt on 28 November 2019 in the carpark at the Canobolas Hotel, but disputed Mr Britt's version of that conversation. Mr Smith denied that Mr Britt asked him what his hourly rate would be. Instead, he deposed to Mr Britt saying that he did not mind paying a $90 hourly rate for him (Mr Smith) but only wanted to pay $85 hourly rate to his labourers and that Mr Smith agreed with that. Mr Smith deposed that the hourly rates charged for work under this contract had been provided by Mr Keith back in the telephone conversation in mid-November 2019.
On 10 January 2020, Karen Britt (of Brisull) sent an email to Xenia Kyriacou (of Smiths), and also to Mr Smith and Mr Keith (and Mr Kullen, also of Brisull). Mr Britt was copied to the email. In the email, Ms Britt alluded to her being informed by "Rob" (Mr Britt) that the same rates would apply, as per the "gaol work" (the EPM engagement), with Mr Smith charging $90 per hour, with $85 per hour for Alan (Murray); with that $85 hourly rate also mentioned in relation to Gordon and Nick (Klopf).
Ms Britt clarified that for the 'living away' allowance, this could only be claimed for a full day, with 3 meals (breakfast, lunch and dinner) and overnight accommodation. If the labourers were able to make it home for the night, the allowance would be reduced to $65 (where there was no need for accommodation).
In his affidavit of 7 July 2021, Mr Smith deposed that had anyone in Brisull suggested that Smiths was obliged to pay its workers the rates at which Brisull was paying Smiths, he would have caused Smiths to cease providing services; as it would not have been profitable for Smiths to supply its services to Brisull on that basis.

Cross-examination of Mr Smith

The features that emerged from Mr Smith's cross-examination, on this topic, were:

he understood that it was Mr Britt who would be approving his invoices, but he did not speak with Mr Britt about 'the finances', either in relation to the EPM engagement or the TransGrid engagement;
he did not accept that it was Brisull's 'requirement' for the EPM engagement that monies paid to Smiths for the hourly rate and per diem allowance would be passed on to its labourers;
he did not accept that Brisull required Smiths to pay to its subcontractors (including DC Labour) the hourly rate and per diem allowance.

Mr Britt's evidence

Mr Britt swore affidavits on 3 December 2020 and 15 June 2021.

The EPM engagement

In his first affidavit, Mr Britt had deposed to a meeting with Mr Smith in mid-May 2017 in Brisull's offices in Gladesville. But when he gave evidence, he corrected that date, and said that the meeting occurred on 24 March 2017. His memory was refreshed by a diary note about a meeting on that date in which he deposed that the agreement had been reached. The diary note referred to a meeting but did not indicate the content of anything discussed at such meeting. As to the content, Mr Britt deposed to asking Mr Smith to help out with a job, which he described as refurbishment of gaols in New South Wales, pulling down and refurbishing bathrooms, re-lining walls and replacing windows; and Mr Smith said Smiths could handle that. He deposed to asking Mr Smith what Smiths' rates were to charge and deposed that Mr Smith responded $90 per hour. In response to this, Mr Britt deposed to saying that Brisull would pay that amount to Mr Smith, and Smiths' labourers as the work would occur away from their homes and they would be working inside a gaol. Brisull would offer Mr Smith and Smiths' labourers a per diem allowance of $200 to cover accommodation and meals to make sure they were all well fed and rested and could get the job done right. Mr Smith accepted this.
Under cross-examination, Mr Britt was referred to correspondence he had authorised from Brisull's lawyers to Smiths' lawyers in June 2020 (Ex D) in which it was asserted, on Brisull's behalf, that the oral agreement with Mr Smith had been reached in May 2017, with Mr Keith (as Mr Smith had asserted). No reference had been made, then, to anything being said by Mr Britt comprising part of the content of an oral agreement with Mr Smith; whether that was in May 2017 or on 24 March 2017. Mr Britt was challenged that he had no real recollection of any conversation with Mr Smith about Smiths' rates (whether or not it occurred in March or May 2017), but Mr Britt said that he believed that he did.
Mr Britt accepted (T93-94) that as operations manager, Mr Keith had authority to liaise with subcontractors about their rates and accepted that he instructed Mr Keith to agree to the two rates (the hourly rate and the per diem allowance) to pay Smiths; even though he had not referred to this in his affidavits.

The TransGrid engagement

In his first affidavit, Mr Britt deposed to a meeting with Mr Smith in the carpark of Canobolas Hotel the morning after a training session conducted by TransGrid at Eastern Creek in late November 2019; which was attended by Mr Smith, among others. The purpose of that session was for TransGrid to instruct workers as to how to perform the necessary works under the 'TransGrid engagement.'
In that context, Mr Britt deposed to asking Mr Smith what his hourly rate for that job was. Mr Smith informed him that it was the same for the gaols. Mr Britt sought confirmation that this was $90 per hour and Mr Smith said yes. Mr Britt deposed to saying that Brisull would pay Smiths a $90 hourly rate, but it would only pay Alan (Murray) and anybody else whom Smiths used an $85 hourly rate. On top of this it, Brisull would pay Mr Smith and Smiths' labourers a $200 per diem allowance, the same for the gaols.

Brisull's submissions

Brisull accepted that, aside from the circumstance that there was a difference in the amount of the hourly rate and per diem allowances and some factual dispute as to when the oral agreement for the TransGrid engagement was entered, there was no real difference in the terms, as between the EPM and the TransGrid engagements. What was fundamentally in dispute was Brisull's propounded (express) term that Smiths agreed to pay to Smiths' subcontractors the rates which Brisull paid to Smiths.
Brisull submits that the Court should prefer Mr Britt's evidence over that of Mr Smith. Mr Britt was not shaken on his recollection of what was said. It was not Mr Keith who negotiated and concluded the terms of the contract with Mr Smith, but Mr Britt. Whilst Counsel for Brisull eschewed any suggestion that Mr Smith was a witness lacking credit, nevertheless, it was inconsistent for Mr Smith to deny having spoken to Mr Britt on the one hand, whilst conceding, at another point in his evidence, that Mr Britt had spoken to him about work to be done (T 28.15).
In relation to the TransGrid contract, this was negotiated in the Canobolas Hotel, as Mr Britt had indicated; and not in Brisull's offices (with Mr Keith) as Mr Smith had indicated.
In his closing address, Counsel for Brisull confirmed his client's position that the term it propounds was only an express term; and not one that could be implied in fact.

Smiths' submissions

Smiths' Counsel argues that the Court should prefer Mr Smith's account of the terms which he reached with Mr Keith (and not Mr Britt's).
Secondly, even if Mr Britt's account of what was said with Mr Smith was correct, the content did not suffice to establish the suggested express term. The real position was that Brisull was indifferent to what rates that Smiths would charge for its labour. Thirdly, this position was indicated by the fact that Mr Britt was aware, for the duration of both arrangements, that Mr Smith was not complying with the suggested term but did nothing to complain about it. Indeed it was not until well into the duration of the proceeding that the suggested term was raised.

Preliminaries

Before turning to the merits of the parties' arguments, I should indicate that I do not ascribe any general clear preference for the evidence of Mr Smith over Mr Britt or vice versa. I find that both witnesses generally tried to give their evidence honestly, but both were less than fully reliable. Mr Smith was unconvincing, for example, when he said that there were other documents, not otherwise in evidence, to sustain his argument that DC Labour had been paid the amounts for labour that Smiths received from Brisull. This had been a live issue for a considerable time and Smiths had the opportunity to adduce documentary evidence in support of its position, but did not do so. In his case, Mr Britt purported to give evidence of conversations which had not been in his affidavits. I find that, both of them, when confronted with evidence contrary to their positions, were apt to give self-serving evidence. I formed the firm view that each had taken entrenched positions.
I therefore preface my consideration of their competing accounts having at the forefront of my mind, the presence of contemporaneous evidence and my own view as to the objective probabilities.
It is important to state, for the benefit of laypersons reading these reasons, that the Court is not expressing any view as to the commercial morality of Smiths' alleged "underpaying" of its labour hire. Further, and for the benefit of lawyers reading these reasons, it is to be noted that (aside from its claim for defective works) Brisull brought no alternative claim against Smiths in restitution, or for misleading or deceptive conduct, referable to Smiths' undercharging its subcontractors. The Court's task is to determine, primarily, Smiths' obligations to Brisull, and its performance of those obligations under an informal (predominantly) oral agreement.
As a further preliminary, although there was a difference in the rates for the two projects, that difference is immaterial when considering the parties' positions as to Brisull's propounded express payment term.
Finally, I note that given that it is a fundamental part of its cross-claim, Brisull bears the onus of proof of the term of the engagements it propounds.

Preference for Mr Smith's account of when and how the oral agreement was formed

I am not persuaded that Brisull has made out its case on the express term of the oral agreements it propounds.
First, on balance, I prefer Mr Smith's account as to how the oral agreement occurred to that of Mr Britt; including which persons had the relevant conversation. Mr Smith's account was consistent, in its expression and accorded with a contemporary document: the purchase order. Further, his account accords with Mr Smith's unchallenged evidence that, contemporaneously, he commenced to engage Smiths' subcontractors.
Brisull's account as to how the oral agreement was constituted fluctuated; as to which persons had the relevant conversations, and even as to the date when the oral agreement was reached - its position in its solicitor's correspondence was to accept that the EPM oral agreement was reached through the conversation between Mr Smith and Mr Keith in May 2017. As Counsel for Smiths pointed out, Mr Britt gave evidence at the hearing of his instructions to Mr Keith to agree to the hourly rates and per diem allowance (T 93-4). At one point in his cross-examination, Mr Britt accepted that Mr Keith generally 'priced the jobs'. That included, among other things, negotiations with Brisull's client, Brookfield. The evidence suggests that Mr Keith implemented those instructions in conversation with Mr Smith in May 2017, as Mr Smith had recounted, and as evidenced in a purchase order (Exhibit B, pp 7-8) that followed that conversation a short time thereafter.
Mr Britt gave no evidence of surrounding circumstances in the lead up to any meeting on 24 March 2017; although Mr Smith had earlier given evidence of prior dealings between Smiths and Brisull prior to the EPM engagement. There was nothing on the face of Mr Britt's diary note of that date to indicate the content of any discussion that occurred. It is passing strange that if an oral agreement was concluded in March 2017, the purchase order reflective of its terms occurred two months later; or that Smiths engaged its subcontractors from that point. It is even more curious why Mr Keith would be engaging in negotiations on a matter that had earlier been the subject of agreement.
Mr Keith was still in the employ of Brisull until late December 2020 and, by then, Mr Britt had the opportunity to raise with Mr Keith the content of Mr Smith's witness statement (Exhibit C) made in October 2020. Mr Britt omitted to indicate, in either of his affidavits, that he had remonstrated with Mr Keith, in any way, about the accuracy of accounts Mr Smith had given of his conversations with Mr Keith; but if those accounts took him by surprise, he surely would have spoken to Mr Keith about them. Instead, under cross-examination, Mr Britt affirmed the correctness of the terms Mr Keith had negotiated with Mr Smith.

Mr Britt's account did not prove the express term which Brisull relies upon

But even if I preferred Mr Britt's account as to the making and the content of the agreement, it said nothing expressly about what obligation that Smiths owed to Brisull, as to what it would pay its own subcontractors. I do not regard the reference, in Mr Britt's account, to Brisull paying Mr Smith and "his men", and Mr Smith's response, as clearly and unambiguously signifying Smiths' agreement about what it would pay to its subcontractors in any way. To the contrary, had that subject been clearly and unambiguously raised by Mr Keith, I consider it likely that Mr Smith would have given him a similar response to what Mr Britt deposed (in his affidavit of 3 December 2020) that Mr Smith gave him when the matter was raised in a telephone call on 11 March 2020: "what I pay my men is none of your business."
At its highest, Mr Britt's account could only signify a statement of expectation on the part of Brisull, as to how Smiths would disperse the payments it received from Brisull to its contractors, but that falls a long way short of any assumed obligation by Smiths.
Materially, there was nothing in Mr Smith's account of his conversations with Mr Keith, which Mr Britt ultimately did not substantially diverge from, that could support the notion of any promise that Smiths provided to Brisull that it would ensure that it would pass on to its subcontractors, in full, the rates that Brisull was paying Smiths.
Although Counsel for Brisull expressly eschewed reliance upon an implied term in fact, there are certain surrounding circumstances which pointed to the improbability of the parties commonly intending that Smiths would pass on to its workers the same rates and allowances to reflect the payments it received from Brisull.
There was no evidence, for example, to indicate any higher price that Brisull was willing to pay to Smiths for its promise to pay its workers the same rates reflective of the rates that Brisull was paying to Smiths; but that might be expected since Brisull is alleging an additional promise by Smiths. Further, there is much to be said for the view that such an obligation would be commercially inconvenient to the parties, for different reasons. For Smiths, there would be the absence of any profit margin. Mr Smith's evidence that he would not have agreed to an arrangement with Brisull which would have the effect of precluding Smiths from obtaining any margin was not challenged and I accept that evidence. For Brisull, if it was genuine or serious about its intention to ensure that Smiths' subcontractors were being paid what Mr Britt thought was proper it might have been expected that some processes for monitoring or surveillance to verify that Smiths' promise was being performed would have been put in place. But the evidence suggests that this would have presented a very significant logistical burden to both parties, resembling the process which Mr Britt has exhaustively undertaken during the course of this proceeding, to compare the payments, representing cost of labour, made by Brisull against the labour charges incurred by Smiths. This was, to be recalled, in an oral agreement where even on the basis of acceptance of Mr Britt's account of what was said, no apparatus was put in place, such as provision to Brisull of the invoices rendered by Smiths' subcontractors to Smiths, to verify Smiths' provision of invoices and timesheets to Brisull. Without that mechanism for verification, there could be no means of Brisull satisfying itself that Smiths' promise to it was being performed.
In my view, there is an element of double standards in Brisull's approach: notwithstanding Mr Britt's apparent protestation that Brisull would have been happy to have provided the information requested, I consider it probable that Brisull would itself have been surprised, and not particularly receptive to the idea of Brookfield, its client, making inquiry how Brisull might pay its subcontractors (like) Smiths, but its case in this proceeding is that it had some entitlement, and on-going interest, to be informed how Smiths paid its subcontractors. Brisull's approach was that it was entitled to make a margin between what it received from Brookfield and what it paid to Smiths on hourly rates and overnight allowances, yet it denied such entitlement to Smiths.
I also take into account that, in an arms' length commercial arrangement between two companies, if I were to accept, as genuine, Brisull's having a concern about Smiths' subcontractors receiving their due, it did not take demonstrable means to record that concern, such as by having Smiths expressly agree to a warranty enforceable by Brisull, or the creation of a trust [1] .

When the TransGrid engagement was formed

There is no dispute between the parties as to the hourly rates or amount for the per diem allowance for the TransGrid engagement. I understood that Brisull ascribes significance to this question in the following way. Mr Britt and Mr Smith gave conflicting evidence about when this verbal agreement was reached. Mr Britt's evidence is more persuasive. This, Brisull submits, is an illustration of a broader reason why Mr Britt's evidence should be preferred to Mr Smith's.
I do not accept the first step, of any suggested conflict. To the contrary, I prefer Mr Smith's account that he had negotiations, again, with Mr Keith prior to Mr Smith reaching agreement with Mr Britt in the car park at the Canobolas Hotel. I accept Counsel for Smiths' submission that Mr Keith and Mr Smith negotiated certain rates, but that Mr Britt later effectively negotiated with Mr Smith to whittle the rates downward. This was indicated in Ms Karen Britt's email of 10 January 2020. Further, it is unlikely that Mr Smith would arrive at the figurative doorstep in a meeting without the groundwork having been laid with Mr Keith.
Several important matters arise from that. First, it tends to reinforce the finding considered earlier regarding the likelihood of Mr Keith negotiating terms in respect of the EPM engagement; rather than Mr Britt. Secondly, there was a similar omission, on Mr Britt's account, of any indication of Smiths accepting an obligation to actually pay the same amounts to its workers to reflect the amounts Brisull was paying to Smiths. Thirdly, as noted, at about this time, Mr Britt deposed that he had learnt that one of Smiths' subcontractors, Mr Murray, had said things which led Mr Britt to think that Smiths was underpaying its subcontractors. But Mr Britt said nothing about it to Mr Smith. This omission followed up an earlier foregoing of an opportunity by Mr Britt to complain about Smiths' treatment of Mr Gillespie. The circumstance that Brisull was willing to enter into a new engagement with Smiths, in the face of at least two indications (from Messrs Gillespie and Murray) of Smiths' subcontractors not receiving their fair share, without discussion indicates that, contrary to his evidence, the matter did not trouble Mr Britt. In this regard, Mr Britt's evidence that Brisull was "reluctant" to re-engage Smiths, or that he and Brisull were "too busy" to think about the matter was self-serving and unconvincing.

Post-contract conduct

It is well-established that post-contractual conduct may be relevant to determining the terms of contracts which are not exclusively written [2] .
As has just been instanced, the circumstance that Brisull entered into the TransGrid engagement whilst Mr Britt suspected that Smiths may have been underpaying its subcontractors but did not raise the matter with Mr Smith or, more tellingly, did not seek to obtain some written warranty in the TransGrid engagement about what Smiths might pay its subcontractors is, amongst other things, probative of the contention that the matter had never been one of genuine concern to Brisull and explains why it was not a term of the EPM engagement.
Further, I place some weight on the more general circumstance that at no stage during the performance of the two agreements, during the whole period (June 2017 - February 2020) did Mr Britt take up the opportunity of raising concerns with Mr Smith about any differential between what Smiths received from Brisull and what it was charged by its subcontractors. Indeed, even at a time when Smiths pressed for payment of the two unpaid invoices in early March 2020, Brisull's ostensible position, conveyed by Ms Britt's emails to Ms Kyriacou, was that the only difficulty causing delay was the fact of Brookfield not having made payment to Brisull. As Counsel for Smiths pointed out in his closing submissions, Brisull had taken the opportunity of making other complaints about the content of Smiths' invoices during the period considered in this proceeding (Exhibit B, pp 59, 325).
In finding this, I acknowledge that around 11 March 2020, it is likely that Mr Britt did raise with Mr Smith his concern for the first time about non-payment of Mr Murray's entitlement. This was reflected in a handwritten note of that date. Mr Smith himself referred to a conversation on that date in his witness statement; although his account of what was said focussed upon an attempt by Brisull to renegotiate rates.
It remained the case, however, that on 12 March and 30 March 2020, Karen Britt was trying to placate or fend off Smiths' pursuits of its invoices. The common explanation for the delay in payment was Brookfield's omission to pay Brisull.
Brisull's case in contract, based as it is upon the propounded express term, accordingly fails. In light of the abandonment of its other claim for damages for defective construction works, this finding is dispositive of Brisull's cross-claim and its defence to Smiths' debt claim.

Estoppel

In view of the conclusion I have formed, it is unnecessary to consider this part of Smiths' argument. However, in case I am wrong in my findings rejecting Brisull's propounded term of the oral agreement, I propose to briefly consider Smiths' alternative case in estoppel.
From mid-January 2017 through to January 2020, the period spanning the life of both contracts, Mr Britt was aware that a number of Smiths' subcontractors were not being paid their per diem overnight allowances. Mr Britt deposed to conversations with David Gillespie, Alan Murray and Gordon (and Nick) Klopf. The first time he raised this, directly, with Mr Smith was in March 2020 after the parties fell into dispute. It will be noted that Mr Britt did not speak of this knowledge that Smiths was paying its labour force for lower amounts than the amounts for hourly rates Brisull agreed to pay Smiths.
Smith relies upon the well-known test for equitable estoppel enunciated by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and, alternatively, conventional estoppel. Under the former, Smiths argues that Brisull knew that Smiths invoiced it on the basis that it was not obliged to pay Brisull's rates to its workers, and that Brisull acquiesced in Smiths assuming that state of affairs; that Smiths acted in reliance on that assumption by continuing to perform services and Brisull intended that it should do so. Under the latter, Smiths cites observations of McPherson J in Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40 at 46 and argues that Brisull had "accepted" its practices throughout 2017 and 2019-20.
I do not accept that either species of estoppel arises. In the case of equitable estoppel, the authorities indicate that there must be conduct directed towards another which induces the assumption and, thereafter detrimental reliance. Mere knowledge of a certain state of affairs, coupled with inaction, is insufficient (although it might amount to a defence of acquiescence, in equity). There is nothing to suggest that by its conduct, Brisull induced an assumption on Smiths' part.
In the case of conventional estoppel, Smiths emphasised the part of McPherson J's observations that a conventional assumption need not be derived from an agreement but it was still necessary to establish "demonstrable acceptance of a particular state of things". But in doing so, it overlooks the remaining part of his Honour's observations, which was that acts done by one party, without coming to the knowledge of the other, could not be capable of affecting their mutual relations. The 'demonstrable acceptance' of which his Honour spoke effectively involved communication by the party sought to be estopped, to the party asserting the estoppel, of its assent to a state of affairs. Nothing that Brisull did (or, more accurately, did not do) conveyed to Smiths that it "accepted" the latter underpaying its subcontractors. Smiths' position was that what it paid to its subcontractors was none of Brisull's business. That position was not contributed to by conduct by Brisull. Smiths may have assumed that Brisull thought the same as it did, but nothing Brisull did contributed to that assumption.
If I am wrong in my rejection of Brisull's case in contract, Smiths' estoppel arguments fail.

Breach and loss or damage

In case I am wrong on the failure of Brisull to establish the putative term, in both engagements, it is appropriate to consider the loss or damage caused by Smiths' non-compliance with it.
Through the cross-examination of Mr Smith:

he accepted that on the basis of the documentation in evidence, although (a) Smiths had charged Brisull for overnight allowances for its labourers and (b) the labourers required overnight stays for working outside Sydney (thereby indicating a need for the allowance) there was nothing to show that DC Labour had charged Smiths for living away allowances or that Smiths paid DC Labour in respect those allowances;
nevertheless, Mr Smith maintained there was an undocumented arrangement between Smiths and DC Labour; and
if Mr Smith's evidence of the hourly rate for subcontractors such as Damien Gillespie was right, there were discrepancies between what was charged to Smiths by the subcontractors and the time the subcontractors actually worked.

There were discrepancies between what subcontractors like the Klopfs charged to Smiths and what Smiths charged to Brisull.

Mr Britt's evidence

In his affidavit sworn on 15 June 2021, Mr Britt deposed (at paragraph 15) that had he known that Smiths was paying its workers at a lesser rate and kept the difference, he would have taken steps to ensure that they (the workers) received the full rates (being the hourly rates and per diem allowance). He would have caused Brisull to directly retain the workers themselves, in connection with both contracts.

Brisull's submissions

Brisull submitted that it suffered loss stemming from its reliance upon Smiths' promise to pay the subcontractors the agreed rates. This was evident in the evidence regarding the positions of Mr Gillespie, Mr Gordon and Nick Klopf, Alan Murray and DC Labour. As to the latter, Mr Smith falsely suggested that DC Labour had paid the workers a $45 per diem allowance when he could not produce any invoice to reflect that fact.
Brisull argues an entitlement for damages under several heads of loss, calculated by reference to: 1. the difference between what Smiths invoiced Brisull for the hourly rate for its workers ($85) and the rate that it actually paid its labourers to complete the work ($45). For the cases of Mr Gillespie, Mr Gordon and Nicholas Klopf, Mr Murray and DC Labour, this represents the aggregate sum of $108,165.88; 2. the difference between what Smiths invoiced Brisull for in relation to the overnight allowances for workers when no overnight allowance was due (as the workers did not spend a night away from home). This was for the EPM contract and represented a sum of $14,400; and 3. the difference between what Smiths invoiced Brisull for per diem allowances where DC Labour had not charged for such allowances. This was quantified at the sum of $13,400.
Schedules, comprising detailed spreadsheets, were prepared by Mr Britt which generally purported to compare the position in terms of Smiths' dealings with its subcontractors (including also DC Labour) in respect to what it was charged, and what Smiths charged Brisull. Those schedules contained extensive cross-referencing to the primary material in Exhibit B (generally containing the invoices and information Smiths supplied to Brisull) and Exhibit 1 (generally containing the invoices and information Smiths received from the subcontractors). The content of those spreadsheets assisted the Court to substantiate Mr Britt's calculations.
Brisull submitted it suffered loss when it incurred the expense to Smiths. It was then that, had the obligation been performed, Brisull would have paid a lesser rate.
Brisull submitted that this was not a case of loss arising from breach of a promise by Smiths to Brisull to pay a benefit to Smiths' workers. Its loss was the overpayment made which it would not have made but for the breach.
Brisull submitted that it was not asking the Court to disgorge the savings to Smiths by reason of its breach, but damages to compensate it for Smiths' breach. This submission recognised the general principle that damages are not recoverable in contract, on a restitutionary basis, so as to preclude recovery where the defendant gains a benefit which is not a loss to the plaintiff; and reference was made to the observations of Sir Robert Megarry VC in Tito v Waddell (No.2) [1977] Ch 106 at 332 and the Full Federal Court in Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300 per Wilcox J at 317. For completeness, to these authorities might be added the decision of Hospitality Group Pty Ltd v Australian Rugby Union (2001) 110 FCR 157, in which the Full Court of the Federal Court of Australia determined (at [157]-[159]) that Australian law does not recognise an entitlement in a claimant to claim 'disgorgement' or 'restitutionary' damages for breach of contract. A claimant is only entitled to be compensated in an action for breach of contract for its loss. The Full Court in that decision emphasised that a claimant may, in an appropriate case, frame an action in restitution, in effect, to recoup benefits obtained by another party.
Brisull submitted, further, with reference to the High Court's decision in Commonwealth v Amann Aviation Pty Ltd (1990) 174 CLR 64 ("Amann Aviation") (per McHugh J) at 163, that its overpayment to Smiths represents wasted expenditure which is recoverable for breach of contract.

Smiths' submissions

Smiths did not contest Brisull's arithmetic.
Smiths contends that as a matter of law, Brisull has not suffered loss from any breach by Smiths of its promise to pay its labourers the amounts reflected in what Brisull paid to Smiths. Smiths cites the observations of Windeyer J in Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 490 ("Coulls") at 499-503 [3] . Smiths argues that Brisull suffered no such loss: any underpayments to the subcontractors did not occasion loss to Brisull.
Smiths argued that the principle in Amann Aviation does not assist Brisull. It was always content to pay the rates it paid (whether they be hourly or for the per diem rate); its complaint was that they were not paid to the right persons (ie Smiths' contractors). Had Smiths performed its posited promise, it would have paid the workers for their full entitlements. It cites Mr Britt's evidence that had it known that Smiths' contractors were being underpaid, it would have taken steps to ensure that Brisull would have paid them itself. So, on the counterfactual as to what it would have done had it known of Smiths' breach, even on that case, Brisull's position would have been no different to what it was: all that would have differed was the identity of the recipient.
Thirdly, it argues that even if Brisull did suffer loss, it failed to mitigate it. Mr Britt was aware of underpayments from mid-June 2017 but did not raise concern with Mr Smith. Arguably (in the absence of any express right to terminate) the conduct would have amounted to a substantial breach justifying termination of the contract; in which case Brisull could not only have recovered damages for breach (at that earlier point) but it would have been free to search for an alternative source of labour.
Smiths also argued that, in any event, there was a flaw in Mr Britt's analysis that he assumed that what the subcontractors had indicated in written correspondence or documents with Smiths represented the entirety of what had been paid. This omitted consideration of Mr Smith's unchallenged affidavit evidence of his paying certain subcontractors (such as Mr Gillespie, and Allan Murray) their overnight allowances. In effect, what those subcontractors wrote to Smiths was not a complete picture of what Smiths had actually paid to them.

Consideration

I accept Smiths' submission that the object of assessing damages for breach of contract is to place the party in the same position with respect to damages as if the contract had been performed [4] . But the anterior question is whether Brisull suffered any loss at all by reason of any breach. This is another matter in respect to which Brisull bears the onus of proof.
I do not consider that Brisull is assisted by the principle in Amann Aviation (or the High Court's earlier decision in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377.) This is not a case of 'wasted' expenditure. In both of those cases, the claimant could not quantify the loss of the bargain arising from the breach; and it could not establish that it would have made a profit from their endeavours out of which its expenditure could be recouped. It could not establish what has colloquially been described as 'expectation' damages (or what Edelman J identified as damages for 'performance interest' [5] ) or what is also described as damages for loss of bargain. It was this which led the Court to make an order for damages to reflect the so-called 'reliance' interest.
In this case, Brisull received all the benefits it bargained for with Smiths: the provision of labouring services to facilitate discharge of its own duties to Brookfield. I do not find persuasive Smiths' recourse to counterfactuals as to what Brisull would have done had it known of the breach; notwithstanding that Mr Britt gave some evidence of that. Brisull's case lies in contract; not in tort (or an action for damages for misleading or deceptive conduct) where the counterfactual inquiry is what would have happened if the wrong had not occurred. The Court's concern is to put the promisee in the position as if the promise had been performed.
Although Brisull is unable to frame a claim for damages on Amann Aviation principles, its alternative argument is simply recovery on the basis of overpayment in breach of a contractual term. There is no objection, in principle, for a plaintiff to recover a payment made to a defendant in reliance upon the defendant's promise of performance. A common example is a deposit. Another example is an overpayment under a contract breached by the defendant. This was illustrated in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257. In that case, the respondent agreed to carry out mining operations for the appellant over a substantial period of time at rates which were based on genuine estimates (reviewed periodically), based on costs. After the relations between the parties broke down, the appellant alleged that, in breach of contract, the respondent had inflated its costs estimates and, in consequence, been overpaid. The Full Federal Court identified as the applicable measure of damages that it represented the difference between the remuneration that the appellant had paid to the respondent and the remuneration it would have paid but for the respondent breaching its contract. The Full Court found that there was an evidentiary lacuna in what that amount was. The appeal was allowed on the basis that the Full Court had overlooked an admission, on the pleadings, by the respondent that there was in fact a very substantial discrepancy between what the respondent paid and its internal estimates. The High Court found, therefore, that the appellant was entitled to substantial, and not nominal, damages.
The position is complicated however where, as here, the beneficiary of the promise that has been breached by the promisor is not a contracting party, but a third party. In Trident, Mason CJ and Wilson referred (at 118) to the question of whether a promisee can recover substantial damages for breach by the promisor of his promise to confer a benefit on a third party as being "vexed" before approving observations by Windeyer J in Coulls. The position in England may be somewhat fluid in view of differences identified in the House of Lords' decision in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518. However that may be, as a primary judge, I should follow what Windeyer J said in Coulls, as endorsed by Mason CJ and Wilson J, in Trident. That being so, I accept that where a promisor (Smiths) breaks a contractually binding promise to a promisee (Brisull) to pay money to a third party (the subcontractors), Brisull would not be prevented from suing for damages to reflect its loss.
The fundamental principle, however, remains that a party is only able to recover its own loss - not the losses of third parties: Australian Goldfields NL (in liq) v North Australian Diamonds NL (2009) 40 WAR 191 at [49]. There must be evidence of what loss Brisull has suffered because of Smiths' breach of its obligation (to Brisull) to pay the third party (the subcontractors) the promised amounts [6] . An example of such loss would be where the promisee (A) loses the opportunity of discharging a debt it owes to the third party following breach by the promisor (B) of the promise to confer a benefit on the third party. The loss which Brisull obtains is not necessarily the same as the loss to the subcontractors. But in the absence of proof of loss, Brisull would only be entitled to nominal damages.
As a matter of substance, as I have indicated, Brisull did not 'waste' any expenditure. This is not a case where Brisull suffered any loss of bargain. In fact, Brisull obtained that which it bargained for: the provision of services to enable it to service Brookfield's requirements, in consideration for agreed payments to its contractor, Smiths. There was no complaint about the quality of Smiths' services; which helps explain why, apart from its refusal to pay the two unpaid invoices, Brisull paid Smiths in accordance with the specific rates for labour services negotiated and agreed. The agreed rates for hours per labourer and living away allowances reflected the parties' agreed allocation of risk [7] . As indicated earlier when I considered the probability of the parties agreeing to the term Brisull propounds, no identifiable part of the consideration paid to Smiths for performance of its services was referable to how it would pay its subcontractors. Brisull received the benefits of what it paid for, by its receipt of the labouring services; the quality of which it never complained about. By its claim of overpayment, Brisull invites the Court to now substantially reduce the payments Smiths received from Brisull which must necessarily alter the terms of the bargain and disturb that agreed allocation of risk. The situation is distinguishable from decisions like Placer (Granny Smith), where the party in breach was disturbing the bargain that had been struck, in terms of the price for the services and it was appropriate (and the contract-breaker partially admitted) in order to restore the parties to their bargain, that it pay back a sum of money that had been 'overpaid' by the innocent party.
In my opinion, Mr Britt's calculations, in his schedules, do not represent loss to Brisull, but rather the windfall gain (embracing Smiths' profit margin) that Smiths obtained after its payment to its subcontractors. Although it formally eschews seeking disgorgement damages, in substance, that is what Brisull is seeking.
I do not accept Mr Britt's evidence, given in cross-examination (and not earlier in his affidavit evidence), that Brisull would sustain any loss in reputation from Smiths' hired labour not having received their entitlements from Smiths. That evidence represented no more than Mr Britt's inherently self-serving subjective belief. It might be supposed that if any party suffered from a loss of reputation in Smiths' breach of the term propounded, it would be Smiths; not Brisull.
Brisull lost nothing from any 'underpayment' by Smiths to its subcontractors.
It follows, in my view, that if there was any breach of a promise, Brisull would only be entitled to nominal damages. It is unnecessary to consider other criticisms made by its Counsel as to Mr Britt's methodology in reaching his calculations. It is also unnecessary to address Smiths' point that Brisull failed to mitigate its loss.

Brisull's claim of defective works

As indicated, Brisull abandoned this claim.

SUMMARY & ORDERS

Smiths has made out its claim in debt. Brisull has failed in its cross-claim. It will be necessary for Smiths to bring in short minutes of order to reflect these reasons, and to update its calculations of its claim for interest.
Smiths has indicated that, in the event of its being successful, it wishes to be heard on costs.
I make the following directions: 1. The plaintiff/cross-defendant is to file and serve short minutes of order and a short outline of submissions (not exceeding 3 pages, excluding relevant attachments) on the question of costs by 26 July 2021; 2. The defendant/cross-claimant is to file and serve any submissions (not exceeding 3 pages, excluding relevant attachments) in response, either as to the plaintiff's proposed short minutes or on the issue of costs by 29 July 2021; 3. The plaintiff is to file any submissions in reply (not exceeding 2 pages, excluding relevant attachments) on the form of the orders or on costs by 2 August 2021.
Final orders, including the order for costs, will be determined on the papers.

Endnotes

J D Heydon, Heydon on Contract: The General Part (2019, Thomson Reuters) [12.170], p 499
For example, Lawrence v Ciantar [2020] NSWCA 89 per Bathurst CJ (Meagher JA and Gleeson JA agreeing) at [114]
which were approved by Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 ("Trident") at 119
Robinson v Harman (1848) 1 Ex 850; Clark v Macourt (2013) 253 CLR 1 at [106]
Moore v Scenic Tours Pty Ltd (2020) 377 ALR 209 at [64]-[65]
Motor Yacht Sales Australia Pty Ltd v Blann [2020] NSWCA 349 at [45]
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 at [13], [205] & [211] 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: 21 July 2021

At a glance

Court

Decision date

Source

Judgment (28 paragraphs)

Parties

Cases Cited (14)

Cited By (1)