THIRD EVENT OF DEFAULT: UNTRUE, INCOMPLETE OR INCORRECT COVENANTS AND WARRANTIES
200As has already been recorded, by clause 4.1 of the Management Agreement (and clause 5.1 of the Profit Deed), Tyneside gave Hammersmith and Roche Group a series of covenants and warranties, six of which are relevant, namely:
(1) that Tyneside had the skill, competence, experience and ability necessary to provide the Services it was required to provide in accordance with the provisions of the Management Agreement (Management Agreement 4.1(a); Profit Deed 5.1(a)(i));
(2) that Tyneside would provide all required and necessary personnel to effectively and timeously meet its obligations under the Management Agreement (Management Agreement 4.1(e); Profit Deed 5.1(a)(iii));
(3) that Tyneside would, to the best of its ability, carry out the Services promptly, punctually and efficiently, and would complete them within the time periods specified by Hammersmith (Management Agreement 4.1(f); Profit Deed 5.1(a)(iv));
(4) that Tyneside would regularly and diligently keep Hammersmith informed about all aspects of the Services and the Development as appropriate, but not less often than monthly (Management Agreement 4.1(h); Profit Deed 5.1(a)(vi));
(5) that Tyneside would not engage contractors or subcontractors without notifying Hammersmith in writing as to (inter alia) the likely costs, time, and alternative quotes, and obtaining Hammersmith's prior written consent (Management Agreement 4.1(j)); and
(6) that Tyneside would carry out and complete the Services in accordance with the Management Agreement (Management Agreement 4.1(d)), and [Mr Haggis] covenanted and warranted that the Services would be carried out and completed in accordance with the provisions of the Management Agreement (Profit Deed 5.1(c)).
201Clause 6.1 of the Management Agreement (and clause 7.1 of the Profit Deed) provided that each warranty was continuing and did not merge upon execution of the agreement, and was separate and independent and not limited by reference to any other warranty, representation or provision of the deed.
202Clause 12.2 of each of the Management Deed and the Profit Deed provided that if an event of default occurred, the party or parties not in default may terminate the relevant agreement by notice in writing to the remaining parties. Under clause 12.1 of the Management Agreement, the following (relevantly) each constituted an event of default:
(a) if Hammersmith, the Owner or the Manager commits a material or persistent breach of any of their respective obligations under this Deed and, after service of a notice specifying the breach, fails to remedy the breach within twenty (20) Business Days of receipt of that notice;
(b) if the Manager does not comply with the directions of Hammersmith in relation to the Development;
(c) if any of the representations, covenants and warranties made by the Manager herein are not true, complete or correct;
...
(f) if the Development fails, at any time, to achieve ninety per centum (90%) of the profit stated in the Report.
203Under clause 12.1 of the Profit Deed, the events of default included those referred to in (a), (c) and (f) - but subject to an additional qualification - above, and also:
(f) if the Management Agreement is terminated for any reason.
204Thus while the event of default defined by clause 12.1(a) of the Management Agreement occurs when Hammersmith, Roche Group or Tyneside has committed "a material or persistent breach of any of their respective obligations under this Deed", and then fails to remedy that breach within 20 business days after service of a notice specifying the breach; that defined by clause 12.1(c) occurs "if any of the representations, covenants and warranties made by the Manager herein are not true, complete or correct."
205Clause 4.1 of the Management Agreement is expressed as a covenant and warranty by the manager to Hammersmith and Roche Group. It contains warranties about present or past states of affairs (paragraphs (a), (b), (k), (l), (m) and (n)), as well as promissory warranties. There are further promises by the manager in other parts of the agreement, principally clause 7. There are also a number of mutual promissory covenants. There is a degree of overlap between the various promissory warranties, particularly between those in clause 4.1 and those in clause 7.
206The language of the event of default in clause 12.1(c), of "not true, complete or correct" naturally applies to a present or past fact or state of affairs. The plaintiffs contend that a promissory warranty is not capable of being "untrue, incomplete or incorrect", and accordingly submit that the event of default prescribed by clause 12.1(c) is not capable of applying to a failure to fulfill a promissory warranty. Against that, the defendants contend that because each warranty is expressed to be "continuing", it can be said to be untrue if falsified after the date of the agreement by subsequent events, as it speaks not only from the date of the agreement but from every subsequent date.
207In my view, the provision that "each warranty ... is continuing and will not merge upon execution of this Deed" means exactly that - that it does not merge on execution, so that execution does not waive a pre-existing state of affairs that amounts to a breach which therefore remains available notwithstanding execution, and the promissory warranties continue in operation after execution. But it does not mean that a warranty that speaks of a state of affairs as at the date of the agreement is repeated for every subsequent date.
208That clause 12.1(c) does not apply to a failure to fulfill a promissory warranty is confirmed by the need to afford an appropriate role to clause 12.1(a), which applies to breaches of obligation and requires the giving of a notice of breach and consequent failure to remedy it. If clause 12.1(c) applied to promissory warranties, then clause 12.1(a) would be deprived of effect in so far as it applies to obligations of Tyneside, and the plain intent that a party in breach be entitled to notice and an opportunity to remedy would, in Tyneside's case, be illusory. Accordingly, I accept that clause 12.1(c) does not apply to a failure to fulfill a promissory warranty - except, perhaps, insofar as it may be established that such a warranty was false when given, in the sense that Tyneside had no intention of fulfilling it. For the same reasons, the same applies in respect of the corresponding provision in the Profit Deed (clause 12.1(b)).
209The warranty of competence (Management Agreement, clause 4.1(a); Profit Deed, clause 5.1(a)(i)) relates to a present matter, namely the skill etc of Tyneside as at the date of the agreements. This is reflected in the use of the word "has". The other relevant warranties are promissory, reflected in the use of the word "will". Accordingly, with the exception of the complaint concerning the warranty of competence, the alleged breaches of warranty relied on by the defendants concern promissory warranties. In the absence of any suggestion that they were false when given, and otherwise of any notice specifying the breach, they cannot found an event of default under clause 12.1(c) of the Management Agreement or under clause 12.1(b) of the Profit Deed.
210However, that does not apply in respect of the warranty in clause 4.1(a) of the Management Agreement, and clause 5.1(a)(i) of the Profit Deed, by which Tyneside covenanted with and warranted to Hammersmith and Roche Group that it had the skill, competence, experience and ability necessary to provide the Services it was required to provide in accordance with the provisions of the Management Agreement ("the warranty of competence").
211The term "Services" was defined in clause 1.1 of the Management Agreement as "the services to be provided by the Manager to Hammersmith in relation to the Development as more particularly described in this Deed and the carrying out of all activities which are necessary or desirable to enable Hammersmith to complete the Development profitably and in accordance with the Report". The same definition is incorporated by reference in the Profit Deed. "Development" was also defined in clause 1.1, as "the subdivision of the Land in accordance with the requirements of all competent Authorities and the development, marketing and sale of the Land in accordance with the provisions of this Deed".
212The definition of "Services" thus contains two limbs: the first comprises the services to be provided by Tyneside in relation to the development "as more particularly described in this Deed"; and the second comprises "the carrying out of all activities which are necessary or desirable to enable Hammersmith to complete the Development profitably and in accordance with the Report".
213As to the first, the Management Agreement recited that Hammersmith had agreed to appoint Tyneside to be the manager of the development (Recital E). By clause 3(d), Tyneside agreed "to use its best endeavours to procure delivery of the development in accordance with the Report or as otherwise agreed in writing by the parties to this Deed". Clause 7.1 (Manager to Perform the Services) provided that Tyneside shall throughout the Term (of 12 years commencing 2 March 1999 and expiring on 1 March 2011):
(a) use its best endeavours to procure completion of the Development in the most timely and efficient manner and in accordance with the Report or as otherwise directed by Hammersmith;
(b) maintain all relevant and appropriate Authorisations for the Development;
...
(e) keep and maintain financial and other records (including supporting documentation) of the Management and the Development to enable it to properly record and authorise the incurring of debt, all contractual arrangements, payments and receipts in a prudent and businesslike manner for passing to Hammersmith to make the payments and collect the receipts for which it is responsible under this Deed;
(f) make recommendations to Hammersmith as to the sale price of lots in the Land but the sale price of the lots in the land shall be entirely at the discretion of Hammersmith and the Manager shall have and raise no objection claim or demand in relation thereto;
(g) provide all administration and supervision in relation to the obtaining of all approvals and the development;
(h) provide full costings and obtain quotes in relation to any work required to be carried out for the purposes of the Development;
(i) advise as to changing economic conditions as they affect the Development;
(j) coordinate the Development and the performance of the Services;
(k) make recommendations to Hammersmith in respect of any additional work or engagement of consultants;
(l) attend and participate as required in meetings with Hammersmith, the Owner and other consultants;
(m) comply with all statutory requirements in respect of the Services and the Development;
(n) comply with all lawful directions of Hammersmith;
(o) provide information and report to Hammersmith, in writing if required, in relation to any aspect of the Services or the Development;
...
(q) act in good faith and bona fide towards Hammersmith with a high degree of professional skill, care, competence and diligence and in the best interests of the successful, timely and cost effective completion of the Development for and on behalf of and for the benefit of Hammersmith; and
...
214Clause 7.2 (Manager to prepare Reports) provided that Tyneside as manager was to issue written monthly reports to Hammersmith in a form approved by Hammersmith by the seventh business day of each month during the term, and specified the contents of such reports, including:
(a) the position in relation to the Report and any variations to it;
(b) the position in relation to obtaining any approvals from competent Authorities;
(c) a full breakdown and details of the Manager's expenditure on behalf of Hammersmith during the month;
(d) a full breakdown and details of the Manager's proposed expenditure on behalf of Hammersmith during the following month;
(e) full details of lot sales during the month;
(f) any recommendations of the Manager together with full details and costing;
(g) any other information which Hammersmith reasonably requires.
215The Management Agreement contemplated that Tyneside would provide the Services through its key personnel, Mr Haggis (whose claimed experience was in property development) and Mr Oliver (whose background was in marketing and sales). Accordingly, at least except in respect of marketing and sales, Tyneside's relevant skill, experience etc was that of Mr Haggis, there being no other relevant permanent staff.
216The plaintiffs emphasise that clause 7.1(a) (like clause 3(d)) of the Management Agreement obliged Tyneside only "to use its best endeavours to procure completion of the Development in the most timely and efficient manner and in accordance with the Report or as otherwise directed by Hammersmith", and thus emphasise that, while Tyneside was engaged to project manage a very large development, the express terms of the Management Agreement provided that, as manager, Tyneside had a coordinating role (clause 7.1(j)); that other consultants might be engaged (clause 7.1(k) and (l)); and that Hammersmith would indemnify the manager for approved expenses and that the direct costs of the development (including insurances arranged by the manager) were to be borne by Hammersmith (clause 11). Further, clause 11.5 expressly contemplated that Tyneside might carry out a "best practice" study (subject to Hammersmith's consent), and the Report envisaged that intensification or improvement of the development might occur as a result.
217Thus the plaintiffs submit that Tyneside did not warrant that it would procure completion of the development regardless of whatever obstacles might arise, nor that it had the competence to do so, but only to use its best endeavours to procure that outcome. I accept that Tyneside did not warrant that it would procure completion of the development, but only to use its best endeavours to procure that outcome. However, I do not accept that the warranty of competence was no more than a warranty that Tyneside had the competence etc to use its best endeavours, and the Plaintiffs, while emphasising that the obligation was not absolute, did not submit as much. I accept that the Management Agreement contemplated the potential engagement of other consultants (clause 7.1 (k) and (l)). However, that does not detract from the obligation of Tyneside to "provide all administration and supervision in relation to obtaining of all approvals and the Development" (clause 7.1(g)), and to "co-ordinate the Development and the performance of the Services" (clause 7.1(j)). Tyneside was in effect warranting that it had the skill, experience, competence and ability to do those things, amongst others.
218This is reinforced by the second limb of the definition of "Services", namely "the carrying out of all activities which are necessary or desirable to enable Hammersmith to complete the Development profitably and in accordance with the Report". Tyneside's warranty was, in substance and effect, that it had the skill, experience, competence and ability to project manage the development to completion, profitably and in accordance with the Report. The content of this warranty is informed by the context of the development. As described in the Report, this was a (worst-case) $68 million profit project on a vast scale, involving creation of 1,500 lots in multiple precincts including a commercial precinct - effectively an entire new suburb. It is also informed by clause 7.1(q), which imports a "high degree of professional skill, care, competence and diligence". Accordingly, Tyneside warranted that, as at the date of the agreements, it had the skill, experience, competence and ability of a project manager of complex, very large-scale, green fields developments. It is analogous to a warranty by a skilled professional to a client, that he or she has the skills and competence of a skilled practitioner of the relevant kind - such as a patient about to undergo a major operation might seek from a surgeon (and which might in any event well be implied), to the effect that the surgeon had the skill, experience, competence and ability to perform such operations.
219The defendants sought to prove that Tyneside did not have the requisite qualities in a number of ways, both by establishing that it had no relevant qualifications, training or experience; and by inference from its performance as manager. However, the truth or falsity of this warranty must be judged according to the date from which it speaks, namely the date of the agreements. The warranty is concerned more with the background and qualities of the professional as at the date when it is given, than with performance. Thus proof of a departure from the standards of a skilled professional, though it may amount to negligence, does not of itself establish that the professional did not have the requisite skill, experience and competence, but only that it was not exercised on that occasion. Lack of the requisite qualities would not readily be inferred from a single negligent act or omission in the performance of the contracted services. Returning to the surgical analogy, the truth of such a warranty is not established by the circumstance that an inexperienced surgeon manages to complete the operation without catastrophe; nor is its falsity established by the commission by a competent surgeon of an isolated negligent act or omission in the course of its performance.
220It is important to bear firmly in mind that in alleging a breach of this warranty, the defendants bear the onus of proof, and the plaintiffs bear no burden of establishing that Tyneside had the requisite competence etc. Thus the defendants undertook the difficult task of proving a negative. However, once there is some evidence to establish the negative proposition, failure of the plaintiffs to adduce evidence to refute it - by establishing the possession of relevant skill, competence, experience and ability - would facilitate an ultimate conclusion that Tyneside did not have them.
221I turn first to the particular grounds which were said by the defendants to manifest Tyneside's lack of the requisite skill etc. Broadly, there were three: (1) failure to produce a master plan for the development; (2) failure adequately to supervise the construction and/or costs of the civil works undertaken by Delamere; and (3) failure to competently plan implementation of the project.
222As to the first ground - Tyneside's alleged failure to produce a master plan for the project - the defendants' case was that a master plan is an essential tool for a large-scale suburban subdivision, as it enables an integrated and cost efficient approach to be taken to the placement of access roads, internal roads, water mains, and electricity; it also enables the manager and the various consultants to understand the impact of work undertaken by one consultant upon the work undertaken by others; and it permits development approval to be obtained for the whole project at an early stage, reducing the risk of exposure to the introduction of more stringent planning controls at a later point. Mr Haggis, on the other hand, maintained that proceeding on a precinct-by-precinct basis, using a Local Environmental Plan and Development Control Plan, with a "structure plan", had the advantage of allowing flexibility in the development of later precincts, especially when there were unresolved zoning issues.
223On 7 April 2000, Asquith & de Witt, consulting surveyors, wrote to Tyneside identifying a number of potential difficulties with community title in the absence of a reasonably detailed master plan. On 27 March 2001, Asquith & de Witt again wrote to Mr Haggis, recommending that at least an indicative master plan be prepared.
224Once the zoning issues had been more or less resolved with the council (on 4 July 2002), Mr Haggis issued an "Urban Design Brief" (on 10 July 2002) to advance planning by stages, in which the first stage was to include sufficiently detailed design for preparation of development applications. During August 2002, Mr Haggis gave instructions to DEM and Asquith & de Witt to prepare a master plan.
225Mr Incoll, who was called by the Defendants as an expert project manager, gave evidence that a master plan generally comprises a drawing or set of drawings and an accompanying descriptive document, describing the future direction of the development as a whole, land uses for the development as a whole, proposed precincts within the development, proposed facilities within the development, proposed road layouts, proposed accesses, proposed lot layout, services reticulation strategy for the whole development, and timing for delivery of the development. He said that preparation of a master plan was one of the steps usually undertaken by a project manager during the statutory planning phase of a development; and that the standard approach to a development of this size, nature and complexity involved developing a master plan in association with the relevant council and other relevant authorities, and combining it with a marketing and sales strategy. The master plan, with relevant supporting documentation and studies, is then lodged for approval of the development as a whole. Subsequent DAs are lodged for each precinct or stage, and amendments made to the master plan as conditions require. Failure to produce a master plan can lead to difficulties in obtaining approvals from authorities, establishing easements for services, and integrating the successive stages of the development. In cross-examination, Mr Incoll accepted that the term "master plan" assumes a variety of different meanings in different contexts, and means different things to different people. He accepted that it would be reasonable to negotiate with the council to try to resolve the principal questions before proceeding to detailed lot layout design.
226Mr Walsh gave evidence that a master plan was a comprehensive and essential document that enables forward planning of a development and the location of essential services relative to the proposed development areas, as well as the approval of the overall development concept by the council, and further consents for individual precincts to be obtained in a much more streamlined manner. An approved master plan precluded the council from making amendments to existing approvals and changing the LEP and DCP. A master plan also permits design of all connecting infrastructure works for the entire subdivision, generates economies in civil works design (from development of the site as a whole) and in staging the development within infrastructure catchment areas, and provides a plan for positive marketing work towards actual sales. He said that a master plan was very important for marketing, as potential purchasers generally liked to know the extent of the entire proposed development before committing. He said that an approved master plan was essential to enable time to be saved in the long term and provide the necessary certainty for the project. He opined that a reasonably competent project manager would not proceed without certainty in respect of council's attitude to the master plan, because council's attitude to developments can change over time, and in the absence of an approved master plan there was nothing to prevent council from refusing to allow ongoing development in the manner desired, nor any proper reference point from which to negotiate with the council in the event that changes become necessary. Mr Walsh's above evidence was not challenged.
227Mr Truswell gave evidence that a master plan was a practical planning document, periodically updated, showing with precision the location of proposed roads, precincts, drainage and other services, to enable the physical implementation of the development concept. A key purpose was to ensure that the various precincts ultimately link up properly in terms of drainage, roads and services. He opined that given the nature and size of the Pambulong Forest project, it was a fundamental requirement that a master plan be prepared, so that all parties, contractors, consultants, developers and financiers had a common reference for all current and future activities, and that lack of a master plan created inherent problems because there was no overall plan. However, he accepted that individual lot layouts were not a necessary element of a master plan.
228Mr Robinson, of Asquith & de Witt, the surveyors, who has been involved in surveying, town planning and subdivision project management since about 1984, said that a master plan involved a development footprint (being the areas of the project that were to be subject to development activity), a plan setting out the layout of the roads, the approximate extent of major drainage lines and water quality facilities, the location and general nature of the non-residential component (being the commercial area), location of access points between the development and the adjacent arterial road, the location and extent of public open spaces, and areas where no development was proposed. He was of the view that a master plan could probably have been prepared within a 6-month period between mid-1999 and April 2000.
229Mr Robinson had expressed the view as early as 27 January 2000 that it would be desirable to have a master plan. On 16 February 2000 he wrote to Mr Winterbottom to the effect that it was, practically speaking, difficult to achieve an overall scheme with a single tier management structure, which was desirable from a sales and marketing perspective, without a precise and comprehensive master plan. On 7 April 2000 he again commented on the difficulty of predicting where mains and reticulation would need to run in the absence of a detailed master plan; however, he also acknowledged that there were, in the circumstances, practical difficulties in doing so. Later, he was to point out that lack of forward planning was "fraught with disaster" and "lack of a master plan makes it almost possible to create any statutory easements etc that may be required". In his evidence, he said that "master plan" was not a defined term, but that every project in which he had been involved had "some degree" of detailed planning about what the development would ultimately comprise. He conceded that one could not say that the project could not proceed with a document such as that produced by Mr Haggis in early 2003 - "the master plan process is about reducing project risk. One cannot say that the project could not proceed with a document such as that one, it just proceeds at a higher level of risk than if you had more detail to start with".
230Opposition to the concept of a master plan, from Mr Winterbottom and Mr Haggis, included that it would lock the development into "a huge range of issues which we will have no hope of changing".
231Mr Fallon, who was called by the Plaintiffs to give evidence on damages, gave evidence in cross-examination to the effect that before recommending a change of course from a "conventional" subdivision to a "community title" development, a competent project manager would investigate the advantages and disadvantages of the two alternatives, including any difference in potential lot yield, and comparable market appetites. He agreed that one of the purposes of a master plan was to enable calculation of the lot yield. He agreed that a master plan could be and sometimes was used as a fundamental tool for planning. But he also said that he had done projects without a master plan.
232As the plaintiffs submitted, the evidence revealed a considerable diversity of views as to what constituted a master plan. It was not established that there was any industry-wide standard or practice in this respect. Only Mr Incoll stipulated that a master plan must show lot layouts, and even he accepted that, if there was a zoning risk, lot layouts might not be included. The preponderance of the evidence supports the view that lot layouts were not an inherent requirement of a master plan. The most that can be said is that one would ordinarily expect a "master plan" to include at least the location of proposed precincts, roads, drainage and other services, to ensure that the various precincts, roads, drainage and services ultimately linked up properly.
233The defendants argued that a master plan was essential in order to enable an appreciation of what the development was going to produce in terms of lot numbers and size - and therefore sales revenue, and that when the intention migrated from a "conventional" subdivision to the "best-practice new-urbanism community title" concept, there was no robust basis for calculating and comparing lot yield - and ultimate profitability - under the alternative models, which deprived Hammersmith of perhaps the most important integer in making that decision. There is considerable force in this argument. In particular, a decision to change direction from a conventional subdivision to a community title subdivision was one with very great potential implications. A project manager should be able to advise the developer of the likely outcomes in terms of lot yield. A reasonably robust calculation of lot yield, value and cost is a necessary precondition to embarking on a project of this scale. Yet none of Mr Haggis' plans enabled one to know what would be generated at the end of the development - even as late as a week before 28 January 2003, the latest plan showed only approximately where the precincts might be, still leaving the ultimate lot yield to be derived by approximation. Mr Fallon, called as an expert by the plaintiffs (though not on this point, on which his views were elicited in cross-examination) agreed that before recommending such a change of course, one would need to examine the comparative lot yields and their likely selling prices of the alternatives. Community title involves smaller lots; therefore more lots would be required to achieve a comparable economic outcome. However, evidence emerged that suggested (though it did not conclusively establish) that Mr Haggis' "best practice" approach might prove inferior, or at least not superior, to the original conventional subdivision approach. A master plan should have enabled this to be identified before the decision to change course was made; and it would also have contributed to co-ordination of the efforts of the drainage and traffic engineers.
234However, while all that appears logical, it cannot be reconciled with the evidence that lot layouts were not considered an essential requirement of a master plan. Moreover, there are other means of deriving approximate lot yields, without preparing a detailed lot layout. Mr Haggis agreed that, even as at 28 January 2003, Tyneside had no intention to develop the precincts in any particular order, had not determined a program as to how the precincts would be developed, had not determined how big each precinct would be, had not determined the location of each of the roads, did not have a delineation of where it was that any of the precincts would be built, and did not have a delineation of where any of the internal roads would be. But he explained that there was an issue that prevented determination of the size of the precincts (apparently referring to the "back-zoning" proposal by the council); that it was necessary to determine what land was suitable for residential development before the location and size of the precincts and detailed design could be determined; that there was no sense in determining the location and size of precincts until the "back-zoning" issue had been resolved; that there was no necessity to detail Lot 104 until after the dam and fore bay was completed and construction of the infrastructure service for Lot 104 was approaching; that determination of the road layout was being deferred until the s 94 appeal was resolved; and that there was no purpose in doing work before it was required.
235Ultimately, I am unconvinced that proceeding by way of master plan, at least until the time when Mr Haggis took steps towards having one prepared in the latter part of 2002, was the only way in which a competent manager would have proceeded. I cannot say that the reasons advanced by Mr Haggis for proceeding in the way he did are unreasonable.
236The second ground said by the defendants to manifest Tyneside's lack of the requisite skill etc was its alleged failures (1) to provide proper directions and instructions in relation to construction of the dam and fore bay area, in failing properly to supervise the construction and/or construction costs of the civil works undertaken by Delamere (another sub-particular, of failing to commission a geotechnical report, fell away when it became apparent that such a report had been obtained) and (2) to competently monitor and control expenditure on the project within budgeted costings, in particular the bill of quantities prepared by Keller Civil Engineers.
237The construction works on the lake and fore bay were the first significant civil works of the project. In a report to the Hammersmith board dated 30 November 2001, Tyneside foreshadowed a construction management process that would involve a construction engineer preparing drawings, specifications and preliminary estimates; a tender process; and the establishment of an on-site project office to administer the construction and maintenance work, to be staffed by Tyneside and Ms Florence, whose duties would include processing progress claims and valuing the work. The potential conflict of interest between Tyneside and Delamere, of which Mr Haggis' daughter Ms Florence and her husband were the principals, and which Tyneside was proposing as the contractor, was noted.
238A bill of quantities (BOQ) for the works was produced by Kellers on 19 February 2002, with a total costing of $1,467,700. Construction drawings were finalised by the end of February 2002, and on 14 March Kellers produced a revised BOQ, with a total costing of $1,397,600. The Rose Group (Rose) - including Robinson GRC and Rose Consulting - which was to be the contract superintendent, was the subject of a scheme of arrangement with creditors for a period, whereupon Ms Florence was moved to Tyneside's Wallsend office to supervise the work and negotiate the approvals directly. By 31 March, the restructuring of the Rose Group had settled. The council issued a construction certificate on or about 26 April 2002, and Delamere commenced the works in early May 2002, without any written contract in place.
239By 2 July 2002, Rose was reporting that they had "lost control of works" and were "unable to assess the status of the contract". Mr Haggis and Ms Florence agreed to conduct an audit of the works, to determine the status and cost of works to date. Mr Haggis acknowledged that, by July, the contractual and supervision arrangements "weren't going very well" and "were in a bit of a mess". On 8 July, Tyneside appointed Mr Simpkins, an experienced and independent construction engineer, to conduct the audit. Mr Simpkins delivered his report on 24 July. He reported that Rose had been unsure of their role and how much supervision was expected of them, given that there was no contract for them to administer and the lack of clear instructions as to their responsibilities, but that as a result of discussion their role had been resolved to their satisfaction - a matter that was confirmed by Rose in a letter of 8 August 2002. He concluded with a recommendation that a project manager be appointed to look after the interests of Tyneside for the project.
240Despite evidence of Mr Haggis and Ms Florence that a draft contract for Delamere was prepared on 5 May 2002, the date it bears, I am satisfied that it was not prepared until early August, after receipt of the Simpkins report: as at 16 May, Mr Haggis was still "foreshadowing" the drafting of a contract; Mr Simpkins reported that none had been prepared as at 24 July; the first reference to it is in a facsimile of 6 August from Mr Haggis to Mr Hall attaching it. Even then, it was less than adequate: schedules referred to in it were missing; it contained no detailed description of the works, and no start date or finish date. It was expressed to be on a "cost reimbursement" basis, although it stated a value of the works as in the Keller BOQ, which was said to form part of the contract. Mr Haggis said that it was no more than a heads of agreement, and agreed that it was not suitable for a "full contract".
241On 31 July 2002, Mr Hall took issue with the adequacy of certificates provided by Rose in respect of progress payments. By 15 August 2002, Mr Hall was seeking clarification of discrepancies between amounts claimed by Delamere and the certificates issued by Rose, including a total budget of $2,087,668 by Delamere against $1,334,272 by Rose. Mr Hall instructed Mr Walsh to examine the discrepancies, and there ensued a chain of correspondence in the course of which Mr Haggis, on 11 October 2002, represented that the cost of the lake to date was $1,270,576 and, with 90% of the work complete, was under the budgeted completion cost by $233,306 - a claim that was repeated at a board meeting on 31 October 2002. Mr Haggis acknowledged that this claim was inaccurate, as Delamere was only claiming that the works were 80% complete a month later on 28 November 2002.
242Following a site meeting on 7 November 2002, involving Mr Truswell, Mr Walsh, Mr Haggis, Mr and Ms Florence, and Mr Collison, Mr Walsh reported that the Delamere and Tyneside representatives were unable to provide any explanation for discrepancies in the variations claimed and between the total of the variations and the difference between the budget and the adjusted budget. However, Mr Haggis explained that the BOQ was irrelevant - which objectively was a correct statement in the context of a "cost plus" or "cost reimbursement" contract. Variation claims would also appear irrelevant in such a contract. Mr Walsh observed that Mr Haggis had little involvement in the meeting.
243Ultimately, in their submissions, the Defendants identified five particular alleged deficiencies in Tyneside' management and supervision of the Delamere contract: (1) no written contract; (2) basis of charging unclear; (3) no clear definition of scope of works; (4) no testing of assumptions underlying the BOQ; and (5) no proper certification process for progress claims.
244The first three of these matters are closely related. Lack of clarity of the basis of charging and the scope of works are consequences of the absence of clearly defined contractual terms.
245The plaintiffs objected that these allegations - essentially of failure to ensure that there was a written contract with Delamere - were outside the particulars, and that there was potential prejudice in that it had not been possible to locate the scope of works for Rose, which might well still be with the Plaintiffs' former solicitors, and which might have corroborated Mr Haggis' claim that they had been instructed to prepare the contract. However, the allegations were the subject of cross-examination. Mr Haggis admitted that the works commenced without a written contract being in place. And even if Rose had been instructed to prepare the contract - which seems improbable for reasons explained below - that would not excuse the project manager from ultimate responsibility for ensuring that the contractual arrangements with a major contractor were in place before works commenced.
246Mr Haggis agreed that a competent project manager would have ensured that a written contract was in place before works commenced, yet Tyneside did not do so. Two explanations for the absence of a written contract were advanced by Mr Haggis: first, that the task was the responsibility of Rose, who had failed to produce a contract; and secondly, that there was urgency in commencing the works, inter alia due to a long range weather forecast for rains.
247As to the first explanation, it is improbable in the extreme that Rose were instructed to prepare the contract. There is no contemporaneous evidence that Rose were expected to prepare such a contract. Mr Simpkins reported, on 24 July 2002, that Rose were unsure of their own role, and specifically that they did not prepare such a contract, because they had not been asked to do so. Mr Haggis reported to the Board on 31 March 2002 that Rose, who prided themselves on their project management services, were not required to perform that role at Pambulong. The draft contract bearing the date 5 May (albeit, as I have found, prepared later) was not prepared by Rose. Moreover, even if Rose had been so instructed, that would not excuse the project manager from ultimate responsibility for ensuring that the contractual arrangements with a major contractor were in place before works commenced. This was if anything all the more critical when there was potential for a conflict of interest, with Mr Haggis' daughter Ms Florence a principal of Delamere.
248As to the second explanation - the claimed urgency - the prospect of Delamere performing the civil works had been alive since November 2001; Mr Haggis says he instructed Rose to prepare the contractual documentation in mid-2001 and expected it to be ready by January 2002; even if so, another four months passed during which the position could have been remedied before works commenced; and even after works commenced, it took until early August for a draft - and less than adequate - contract to be prepared.
249As to the basis of charging, while the contract may not have been documented, it is clear enough that the basis on which Delamere was retained was "cost reimbursement", where the costs included a margin for administration and profit charged at industry standard rates. Sometimes this was referred to as "cost plus", although there was lack of clarity as to what the "plus" was. Mr Haggis said that it was a margin for administration and profit, but did not know what the margin was and said that it was not necessary to know; yet he denied that it was a schedule of rates contract. Mr Florence said the "plus" was materials. The role of the Kellers BOQ remained somewhat unclear: while, if that matter had to be litigated, it might well be that it would have been held that the BOQ was irrelevant in the context of a "cost reimbursement" contract, the absence of clear contractual terms undoubtedly contributed to confusion in the latter half of 2002.
250As to the scope of works, while it is true that the Kellers BOQ did not cover all the works ultimately performed, and that not all of the discrepancies were attributable to unexpected variations, I am unpersuaded that there was significant ambiguity or doubt as to the scope of what Delamere was to do.
251The fourth matter - that there was no testing of the assumptions underlying the BOQ - is in a different category. Ultimately, the works cost about $1.6 million, against the BOQ of $1.397 million.
252Mr Walsh reported on Delamere's costs in late November 2002, and his analysis then ($1,532,765) did not differ substantially from Delamere's final claim of 28 February 2003 ($1,535,715). However, he repeated the exercise on 24 January 2003, and revised the result - downwards and substantially - to $1,376,518. This was supposed to demonstrate that Delamere was excessively expensive, but Mr Walsh's revised analysis was shown to be unsupportable in cross-examination - he applied incorrect rates for several items - and the re-examination, while explaining one aspect that he had been unable to explain in cross-examination, by no means rehabilitated the remainder of his evidence.
253Thus it was not demonstrated that Delamere was unreasonably expensive. That the costs of the works ultimately exceeded those in the BOQ does not bespeak incompetence. The Kellers BOQ did not include all of the items of work ultimately done: for example, there was a variation for draining approximately 3 hectares of residential land in Precinct 2; the BOQ did not allow at all for landscaping, professional engineering, excavating into rock, or importing fill material or rock material for use in water control structures, or adequately for supervision fees. There is no doubt that the BOQ was based on some assumptions that turned out to be incorrect. For example, much more topsoil had to be excavated than the BOQ allowed, and there was excavation into rock, for which Kellers had made no allowance. Nor had Kellers specified a rate for the mixing of crushed rock with unsuitable material.
254Although Mr Haggis agreed that a competent project manager would have ensured that, to the extent that a contract was to be based on a BOQ, the BOQ was based on accurate assumptions, first, this contract was a cost reimbursement contract and not based on the BOQ; secondly, a BOQ is necessarily an estimate based on assumptions, the accuracy of which cannot always be known in advance; and thirdly, an allegation that Tyneside failed to procure an appropriate geotechnical investigation (which might have exposed relevant inaccuracies) fell away when it emerged that such an investigation had been undertaken. I do not consider that it has been established that a competent project manager would have done more than Tyneside did in this respect.
255The fifth matter - that there was no proper certification system for progress claims - was again related to the absence of clearly defined contractual terms. Rose was constrained in its ability to provide certification in the absence of a contract that specified what Delamere was to do and how they were to be remunerated. However, there were no substantial difficulties with payment of the first five progress claims. It was not until claim 6, which was due for payment on 30 September 2002, that difficulties emerged, and this was contemporaneous with the deterioration in the relationship between Roche Group and Tyneside, when Hammersmith declined to pay even undisputed portions of Delamere's invoices. Mr Walsh scrutinised the progress claims by comparison with the Kellers BOQ, and insisted that the accounts be presented in a form that facilitated that comparison, which was inconsistent with the requirements of a "cost reimbursement" or "cost plus" contract. Mr Walsh does not appear to have appreciated this - or if he did to acknowledge it. I am unpersuaded that issues with certifying progress claims are attributable to incompetence on the part of Tyneside.
256Accordingly, by no means all of the matters invoked by the defendants as demonstrative of inadequacies on the part of Tyneside as a project manager in connection with the administration of the Delamere contract were established. But some were, including in particular that Rose were unsure of their role and by 2 July 2002 were reporting that they had lost control of the works and were unable to assess the status of the contract; that by Mr Haggis' own admission the contractual and supervision arrangements "weren't going very well" and "were in a bit of a mess"; that it was necessary to retain Mr Simpkins to conduct an audit to determine the status and cost of works to date (which with competent project management should not have been required); that Mr Simpkins saw it appropriate to recommend that a project manager be appointed (when Tyneside was supposed to be the project manager); and that Mr Haggis twice misrepresented the status of the works to Hammersmith as 90% complete. These matters were largely attributable to the absence of a written contract between Hammersmith and Delamere. In the absence of an acceptable explanation, the failure to ensure that there was a written contract in place with Delamere before works were commenced is a significant indicium of incompetence, though not on its own probative of it.
257The third ground said by the defendants to manifest Tyneside's lack of the requisite skill etc was Tyneside's alleged failure to competently plan the implementation of the project, including: (1) failure to address obstacles to progressing with community title; (2) failure to settle the traffic infrastructure; (3) approval of deficient designs for precinct 1; (4) failure to achieve forecasts; (5) failure to competently manage and coordinate the consultants; and (6) inability to perform the Services without Mr Winterbottom.
258The first of these matters is the allegation that Tyneside failed to address issues concerning community title raised by solicitors retained by them, Sparke Helmore, in a letter to Tyneside dated 31 October 2001. The letter outlined a number of potential problems with use of a community title scheme for Pambulong Forest. But contrary to the defendants' submissions, the advice was not that "wide ranging legislative change ... would be required to achieve a community title sub-division as envisaged by Tyneside for the project". Rather, it was that "the best way to resolve these problems would be to lobby the State Government for special legislation" allowing the developer to excise lots from the precinct, empowering a commercial committee to levy special interest members, and permitting a separate commercial committee for commercial members; that "consideration should be given to seeking an amendment to the legislation" permitting owners to submit development applications without the need for consent from the various associations; and that "consideration should be given to lobbying parliament to amend the ... legislation to allow the creation of additional community property at a later point in time without the need for unanimity". The advice concluded by listing "the major weaknesses of the application of the Community Title Legislation to the development" and then recording (emphasis added):
Various methods have been incorporated into the Management Statement to overcome the above problems. Difficulties and anomalies in the legislation however, may require legislative amendment to enable to development to proceed as intended.
259After contending that none of the legislative amendments referred to in the advice were achieved while Tyneside was project manager, the defendants' submissions then proceed to argue that the project would have progressed more smoothly had Tyneside not been so fixated on community title but proceeded with a Torrens title subdivision - which is a rather different complaint from failure to address the issues raised.
260The evidence establishes that Mr Haggis had meetings with the Registrar-General's office, Parliamentary counsel and the local member on these issues. Failure to achieve legislative reform is hardly a mark of incompetence as a project manager. Moreover, the Sparke Helmore advice responded to instructions from Mr Haggis to, inter alia, 'list changes we are seeking to make to the Act and the reasons for those changes', and sought to detail 'the weaknesses of the Community Titles legislation and how these issues have been overcome in the Community Management Statement and Precinct Management Statement'. Thus, the advice itself states that various actions had already been taken or were proposed by the solicitors to mitigate the problems (including the passing of resolutions after registration of plans and the inclusion of provisions in contracts for sale of land); the occasion for performance of those matters had not arrived when Tyneside was dismissed.
261Further, an email from Mr Hickey of Sparke Helmore to Mr Haggis of 29 November 2002 reported on a meeting between Mr Hickey, Mr D Roche and Mr Hall at which (emphasis added):
The titling issues were discussed, and in particular the draw backs concerning Community Title development as opposed to Torrens freehold development, namely the obligations on lot owners to manage common property roads and community facilities; I discussed the benefits of Community Title being the architectural guidelines themed development which runs in perpetuity with each of the lots by virtue of a management statement which captures building design and architectural themes; I discussed with them my view that the project was able to operate in its current form notwithstanding the restrictions that the legislation imposes on large community schemes. I went through with them each of the restrictions as detailed in our earlier letter of advice including ...
262The email then listed the matters referred to in the 31 October 2001 letter. While Mr Roche and Mr Hall give a different version of their meeting with Mr Hickey, I prefer the contemporaneous email record. Nor do I consider that Mr Hickey was so clearly in the camp of the plaintiffs to justify drawing any adverse inference from their failure to call him, particularly as the email appears plain enough.
263In any event, approval for community title subdivision, including a town centre, was obtained for the whole of Lot 104.
264In the light of those matters, I do not think it can be concluded that proceeding with a community title subdivision in the face of the issues raised by Sparke Helmore was misconceived, foolhardy or incompetent. I therefore do not accept that failure to achieve legislative amendment of the community titles legislation, nor persistence in a community title development, manifests lack of the requisite qualities on the part of Tyneside.
265The second matter raised was failure to settle the traffic infrastructure, and in particular failing to secure a final approval from the Roads and Traffic Authority for the access points to the development. On 7 June 2001, the RTA gave "in principle approval" to two of the three proposed access points, indicating that the final location and form of the accesses would have to be established through appropriate studies, and a revised access control plan submitted following RTA endorsement. The Walsh/Truswell Report of 26 September 2002 identified that Sinclair Knight Merz (SKM), who were retained to design the intersections, had completed the design of the major roundabout, but had not yet been asked to address the design of the other two planned roundabouts, and did not think that the RTA would consider allowing two, but only one; and that a protracted series of meetings and preliminary designs would normally be required to resolve such questions. The suggested inference is that Tyneside did nothing to progress this.
266However, there is considerable evidence of endeavours on the part of Tyneside in this domain; the following summary is not exhaustive. On 3 October 2001, Mr Haggis wrote to the RTA (Mr Nunn) expressing concern that the RTA may be reconsidering its agreement to the access points and asking it to complete the matter as soon as possible. The RTA (Mr Mike Walsh) responded in a letter that referred to the 'three approved access points' and confirmed that 'RTA has agreed to the proposed locations for access', and referred to progress with the detailed design and a meeting with consultants Mr Kneist (of Rose) and Mr Stapleton (traffic engineering consultant) on 28 September 2001. Following the issue by the RTA to the Council of an "Integrated Development Assessment" letter on 13 November, Mr Haggis wrote to Mr Nunn on 18 December 2001, submitting that the RTA ought urgently reappraise a recent reversal of its 2000 agreement to three intersections. Mr Nunn responded on 21 December, that 'in principle agreement has been given to the three access points ... for the development, with intersection details to be worked through', and 'Rose Consulting has significantly progressed design details of the access at Withers Street to serve its first stage of development and in so doing has gained RTA input'. "RTA Issues" were an item under "Tasks" in Tyneside's 10 January 2002 Pambulong Forest Issues Report. At a meeting with Rose Consulting on 8 April 2002, Mr Haggis "stressed ... need to compress the design program for the roundabout modification ... Need to have ... works designed approved and under construction in the quickest possible time" and that "RTA have stressed the necessity for a safety audit to be completed on the roundabout reconstruction. Sean Morgan can carry out this work".
267In a letter to Mr Hall of 10 May 2002, Mr Haggis reported that the general layout and safety audit of the Withers Street roundabout was being undertaken by Sinclair Knight Merz (Newcastle) who had taken over the traffic engineering work as Mr Stapleton "had got to be expensive and a bit slow". On 27 June 2002, Mr Haggis wrote to Mr Hall requesting priority payment of SKM's 21 May invoice, and mentioned that they were preparing engineering drawings for the roundabout modification and carrying the traffic modeling for the s 94 dispute and master plan. A 2 July 2002 minute of a site meeting with Rose Consulting records that Mr Kneist and Sean Morgan were to meet the RTA on final roundabout design. By 30 August 2002, the road safety audit and traffic management plan were complete.
268The above demonstrates attention to establishing the traffic infrastructure. In principle agreement to three access points was secured, although the focus was understandably on the major roundabout, which would provide access to the first precinct. Moreover, Mr Walsh accepted that the project would be perfectly viable, even without a third roundabout. In that context, I am not persuaded that there was negligent inattention to settling the traffic infrastructure, or that incompetence is manifested by the failure to secure final approval for three access points.
269The third matter of complaint is that Tyneside approved a design plan for Precinct 1 that is said to have contained a number of serious design defects. The alleged defects, mentioned in Mr Walsh's "Development Appraisal" of 27 January 2003, include (1) a disconnect between the small lot sizes (playing to the lower end of the market) with housing designs (calculated to attract all sections of market, some requiring substantial initial and ongoing maintenance costs); (2) for some blocks the nominated house design and small lots meant that retaining walls of up to 2.2m would be required; and (3) for 10 of the house sites it was proposed that side verandas face a sheer wall 2 metres away. Other criticisms originally advanced by Mr Walsh, including in respect of driveway gradients, were not pressed, no doubt in the light of the impact on his views of cross-examination.
270The first of these criticisms is difficult to reconcile with Mr Walsh's opinion that 83% of the house designs were less than 165 square metres and in his view "far too small". In any event, Mr Walsh is not an architect. The drawings on which his opinions were founded, and his workings, were not produced. The drawings on which his opinions were based were draft plans, prepared by Rose Consulting, in contemplation of a future application for a construction certificate. However, they were merely indicative of the types of houses that might be built, and not prescriptive of what must be built, on each lot. In my view, nothing in this respect supports an allegation of negligence, let alone general incompetence, against Tyneside.
271The fourth matter of complaint is that Tyneside failed to achieve (1) a cash flow forecast prepared as at 31 October 2001, which relevantly forecast that in the period June to December 2002 the project would achieve between 50 and 100 sales and thereafter between 75 and 100 sales in each 6 month period; and (2) a construction program contained in its 30 November 2001 report to the Hammersmith board, which provided for completion of the lake and earthworks by mid-April 2002.
272It is true that no sales at all were achieved in the period June to December 2002, nor indeed before the board meeting of 28 January 2003. It is also true that the construction program timeframe was not met, as the construction certificate for the lake and fore bay works was not issued until 26 April 2002, and the construction works were not completed until early 2003. However, the mere fact that a forecast is not met does not mean that the project manager is negligent, let alone incompetent. Mr Haggis explained to Mr Hall, in a letter of 30 July 2002, that a number of factors had altered the cash flow outlook since November 2001, including that the Dam Safety Committee had upgraded the lake, the RTA had revisited the Withers Street roundabout design, the Council had adopted a 'recalcitrant' s 94 plan in December 2001 contrary to previous assurances, and the Christmas bushfires resulted in a rushed new SEPP and new Act in June 2002. He said that "these all delayed the approval process and our revenue base", and not unreasonably commented that "Even with the perception of Merlin we would have been battling to predict this lot". The pendency of the s 94 appeal, and subsequent direction by Mr Hall to avoid committing to unnecessary expenditure in the meantime "until we know everything is proceeding", and then the "stop work" directions, could only have exacerbated the delay. These were not matters within Tyneside's control, and provide a sufficient alternative explanation for the non-achievement of the relevant forecasts that it would not support an inference of incompetence.
273The fifth matter of complaint was that Tyneside failed to competently manage and coordinate the consultants. As was contemplated by the Management Agreement, Tyneside engaged and instructed a number of consultants, including a hydraulic engineer, a landscape architect, a traffic engineer, a surveyor, an architect, a geotechnical engineer, a fire hazard consultant, an ecological consultant and an archaeologist. It was not submitted that this was without any requisite approval of Hammersmith. It is not in doubt that a function of a project manager generally is to co-ordinate the work of the consultants; and this was explicitly a function of Tyneside under the Management Agreement. Failure of co-ordination is calculated to lead to delays, errors, incomplete works, unnecessary duplication, redundancy, and frustration and lack of focus by the consultants.
274The Walsh/Truswell report found that "a pattern has emerged of disquiet among some consultants" and that there was "a lack of direction" being provided by Tyneside. But when it comes to specifics, the matters chiefly advanced by the Defendants as manifesting this are (1) that DEM (landscape architects and planners) were belatedly instructed (after the 8 August 2002 site meeting) to prepare a master plan for the project; (2) that Robinson GRC had not had a meeting with other consultants for over 8 months, when it was vital to ensure that their work was being conveyed to town planners and drainage designers to avoid redundancy; (3) that SKM had been commissioned to design the major roundabout but not yet asked to design the other two, and had not had a meeting with other consultants in more than 6 months; (4) that Rose Consulting had only one site supervisor and one draftsman to design and coordinate the roads, water, sewerage and electricity and had not work in tandem with Robinson GRC, which could lead to problems in the future. Moreover, Rose's relationship with Delamere in respect of the construction of the dam and fore bay had broken down; (5) Asquith & de Witt were concerned that the lack of a master plan was fraught with disaster and that use of community title was exceptionally onerous, and also that pre-determined housing designs for each allotment would not work in the Newcastle market.
275Substantially for the reasons already given in connection with the complaint about failure to prepare a master plan, I am unpersuaded that the failure to instruct DEM, or anyone else, to do so before August 2002 is necessarily indicative of inadequate co-ordination. For the reasons already advanced in connected with the allegation of failure to settle the traffic infrastructure, I am likewise unpersuaded that the circumstance that SKM had not yet been asked to design the second and third roundabouts is of significance. And substantially for reasons already given, I would not conclude from Asquith & de Witt's concerns about the use of community title that there was an inadequacy of co-ordination.
276However, there is a significant body of evidence and opinion that supports the contention that Tyneside's co-ordination of consultants was deficient. In a review by Mr Winterbottom of the project in April 2000, he acknowledged that Tyneside's "failure to be sufficiently clear about where their internal co-ordination stopped and our project management role started, nor about the different roles of the three of us", had contributed to the unsuccessful management of the consultants as a team. Mr Haggis accepted this. According to the Simpkins report - which it will be remembered was commissioned by Tyneside, not Hammersmith - Rose was unsure of its role in respect of contract supervision with Delamere, and this resulted at least in part from the lack of a written contract, and the absence of clear instructions as to the particular activities that Rose should be undertaking. Mr Truswell's interim report of 29 August 2002 - prepared on the instructions of Roche Group to review the project - described the administration of the project as "terribly flawed". The final Walsh/Truswell report of 26 September 2002 concluded that there was "a lack of direction" being given to consultants by Tyneside.
277The Walsh/Truswell report made the following observations that bespeak a serious failure of co-ordination:
RCG believe the minimum road width is 3.5 meters.
The traffic engineers are of the opinion that it is 4 meters
RCG believe they will develop the internal road layout in each precinct.
DEM believe they will develop the internal road layout in each precinct.
RCG believe that the traffic engineers are to review traffic aspect of their work.
The traffic engineers are not aware of this.
278Mr Incoll, the defendants' project management expert, was of the opinion that there was a lack of coordination of the consultant services, particularly in areas of procurement planning, scheduling for tender phase, and external authorities planning, and that this led to delays, uncertainties and inefficiencies. In cross-examination he said that the standard function of recording what consultants are to do, who is to do it and when, was missing. Eventually, when pressed in cross-examination that this was being somewhat perfectionist, he answered "To the contrary. I would say the administration of the design team is the worst I have seen in my 30 years of practice, but I wasn't so harsh in my report". Notwithstanding my reservations about some aspects of Mr Incoll's evidence, I give his opinion on this issue weight, as it was uncontradicted by any expert called by the plaintiffs, and it accords with my independent appreciation of the position as discussed above.
279If anything, the circumstance that the project was not "master-planned" increased the importance of careful and detailed co-ordination of the consultants. In my judgment, Tyneside's co-ordination of the consultants was deficient, and seriously so. That would not of itself establish that Tyneside lacked the requisite qualities referred to in the warranty of competence, but it is a matter to be included in the ultimate assessment.
280The sixth and final matter of complaint under this ground is that Tyneside was unable to perform the Services required of it under the Management Agreement without Mr Winterbottom. Tyneside engaged Mr Winterbottom as a permanent consultant, to perform a substantial part of the Services, at Hammersmith's expense. He was engaged in the management of the project from a very early stage, and came to form part of the Tyneside team, sometimes working from the Tyneside office and using Tyneside letterhead. The project management tasks he performed included preparing programs and schedules of activities for projects, identifying and defining activities and estimates of the costs, preparing and issuing briefs for activities, assessing consultant responses and recommending appointments, managing consultants on a weekly basis, liaising with local government and other agencies on specific projects, integrating consultant inputs and submissions, and on-going liaison during the implementation phase. These were functions that fell within the description of the Services that Tyneside had contracted to provide.
281Mr Oliver considered that Mr Winterbottom was the de facto manager of the project. While this overstates the position, it is plain that he performed a substantial part of the project management function. Mr Incoll, from his review of the available documentation, formed the view that Mr Winterbottom was responsible for many of the day-to-day aspects of project management. He was clearly doing more than performing statutory planning functions, as suggested by Mr Haggis. He prepared all (but possibly one) of the briefs to consultants; he arranged all the consultants for a design conference in August 1999; he undertook a written review of the project; he was instrumental in engagement with many external advisers (such as Mallesons, in respect of the s 94 issue).
282It may be accepted that the Management Agreement did not oblige Tyneside itself to undertake every project management function. However, as the defendants emphasise, the work described above and performed by Mr Winterbottom was all within the description of the Services that Tyneside had contracted to perform, for the price stipulated in the Management Agreement; yet it was being performed by Mr Winterbottom, who was retained as a consultant at additional cost to Hammersmith. That Mr Winterbottom's services were required to deliver the Services, in addition to the resources existing within Tyneside, points to a lack on the part of Tyneside of the ability to perform the Services. This is consistent with, and reinforced by, Mr Haggis' statement at the 15 August board meeting at Roche Group's offices, as reported by Mr Truswell:
I'm over stretched, I'm having difficulties coping with the Project and I believe I'm going to need help to do it. At the moment I've engaged a planner, surveyor, an ecologist, a landscape architect, an architect, an urban designer, a traffic engineer, a geotechnical engineer, and a civil design engineer as well as the civil contractor.
283It is next appropriate to consider the submission that lack of the requisite qualities on the part of Tyneside can be inferred from the overall status of the project as at mid-2002. In short, it was years behind what the Report contemplated. No development approval had been obtained for the whole of Lot 104; indeed the only development approval was for 37 lots in Precinct 1 (some of which were "superlots", with potential for further subdivision into a total of 63 lots). None of the 21 precincts ultimately contemplated (including Lot 107) - other than Precinct 1, and a little of Precinct 2 - had been planned. Even by January 2003, Tyneside had not produced a subdivision with a single saleable lot - and did not anticipate doing so before the end of 2003. This of course fell short, by a long way, of what was envisaged by the Report, which included completion of planning by 2002; construction of the third of eleven stages by mid-2002, and the commencement of the fourth at the beginning of 2003; and sale of 199 lots by end 2002, with the project to become cash-flow positive in mid-2003. Accordingly, the milestones in the Report were not being achieved, and were not close to being achieved. Moreover, Tyneside's 31 October 2001 forecast that there would be sales of 50-100 lots between June and December 2002, and thereafter sales of 75-100 lots each 6 months, was not fulfilled, and again the shortfall was not marginal - no sales were made.
284Failure to achieve the milestones in the Report does not of itself mean that Tyneside lacked the requisite qualities, though it invites consideration of whether the failure to achieve those milestones was attributable to lack of competence on the part of Tyneside, or to other cause or causes. Notwithstanding that the milestones in the Report were not achieved, there had been a measure of progress. The "best practice" study was undertaken, as the Management Agreement contemplated it might, and this incurred some delay. The project was expanded, to include Lot 107. The board was not unhappy with the progress made by Tyneside in mid-2001. The council indicated that it wished to see the LEP resolved before considering any development applications; an LEP and DCP was proposed and carried through the Council, effecting a rezoning, in September 2001. Tyneside lodged a development application for Precinct 1 in October and for community title in November 2001. Meanwhile, in October 2001, Tyneside lodged objections to the draft s 94 contributions plan, and following release of the final plan in December 2001 caused an appeal to be filed in the Land & Environment Court in March 2002. As has been mentioned, pending the outcome of the s 94 appeal, Mr Hall on 24 June 2002 requested Mr Haggis, to proceed only with essential matters pending the outcome of the appeal. The back-zoning issue had to be resolved before detailed planning of precincts and lot layouts could sensibly proceed, and that issue was substantially resolved by 4 July 2002; on 10 July 2002, Tyneside issued its Urban Design brief. In addition, in March 2002, a new SEPP arising out of the previous Christmas bushfires impeded progress. Also contributing to some delay was that Gilbert Rose entered into a scheme of arrangement, when in the midst of preparation of construction drawings for the lake.
285Thus, by mid-2002, the zoning issues had largely been resolved; council's agreement to a town centre had been secured; a Development Control Plan was in place; the back-zoning threat was averted; consideration had been given to the community title form of development; four development applications were underway, including community title for the entirety of Lot 104; construction of the lake and fore bay, the Tramway Road and some other smaller jobs was well-advanced; the urban design brief had been issued and instruction given for the commencement of master planning; and the s 94 appeal had been instituted and was being prosecuted.
286The project was a complex one. While it is undoubtedly true that it was just such a project that Tyneside warranted that it had the requisite qualities to manage to successful completion, delays in development projects do not necessarily bespeak incompetence on the part of the project manager. In this case, delay had been incurred by reason of the (contemplated) investigation and adoption of the "best practice" alternative for the development, particularly because it led to the requirement for an LEP and planning processes at the front end of the project; through the proposal to add Lot 107 to the project; through the s 94 appeal to the Land and Environment Court - and more particularly on account of Hammersmith's request only to undertake essential work until the s 94 appeal was resolved; by the requirement to address emergent planning issues under the Bushfire Act; and by the back-zoning issue, which was substantially resolved only in June 2002. Thereafter, the "cease new work" directions of 8 August and 12 November 2002 effectively restrained further progress, in particular the brief to DEM to develop a master plan. None of these matters was attributable to deficiencies of Tyneside as manager. I am therefore unable to conclude, from the status of the development project as at January 2003, that Tyneside lacked the requisite qualities as at the date of the Management Agreement.
287However, the defendants' case did not rely solely on the drawing of inferences from supposed deficiencies in performance, or lack of progress in the development. In addition, the defendants contended that as at the date of the Management Agreement, the relevant skill, experience, competence and ability of Tyneside was that of Mr Haggis, and that when one examined Mr Haggis' background, it became apparent that he did not have the requisite qualities.
288Between 1962 and 1969, Mr Haggis was employed as City Planning Officer for Salisbury, South Australia. That does not evidently involve experience in project managing developments. He claimed that between 1970 and 1980, he practised as property development consultant, in partnership, and that between 1970 and 1999, he advised on and undertook development works in relation to various projects. In the profile provided to Roche Group on 2 March 1999, on which he must have known they would rely in entering into the venture, Mr Haggis described his career during the period 1990 to 1997 as "Property developer specialising in small home and unit development, land subdivision projects and building renovation schemes". He listed, as a "selection of projects completed in the past ten years or currently being undertaken", some 21 projects. At first sight, this conveyed that Mr Haggis was a successful property developer whose group of companies had completed or were undertaking the listed projects. However, in the early 1990s, most of the companies with which he was associated went into liquidation; Mr Haggis himself became a bankrupt in 1992 (he was discharged in 1995); during that period, he worked on projects for his daughter and son-in-law's company, Delamere. For many of the projects listed, his only involvement was to "assess" them. With the exception of two, none of the projects since 1990 had been developed by Mr Haggis or companies associated with him. Many were not completed, or even commenced, and the values attributed to them bore no relationship to his role - or, in many cases, to reality. The two in which he had personal involvement - Parmenter and Parrish Avenue - were sites that he had acquired, but in respect of which he had undertaken virtually no subdivision activity. They were not comparable in any way to Pambulong Forest.
289Mr Haggis had no formal qualifications or training as a developer or project manager. He had never before undertaken a project of, or remotely approaching, the scale of Pambulong Forest. He agreed that none of the larger subdivisions with which he claimed to have been involved many years earlier in Adelaide were in any way comparable with Pambulong Forest. Moreover, this claimed experience with larger developments is itself dubious - the three largest with which he claimed to have been involved did not appear on his "profile", where one would have expected to see any relevant experience, and I conclude that if he had some involvement in subdivisions in the order of 300 lots in Adelaide, it was not relevant to an assessment of his competence to project manage a development of the scale of Pambulong Forest.
290I readily accept that formal training and qualifications are not the only way in which one may acquire relevant "skill, competence, experience and ability". I also accept that experience in smaller projects may equip one with the requisite experience to undertake a larger one. However, the proved absence on the part of Mr Haggis of relevant training, qualifications and experience as a project manager of developments even vaguely comparable to Pambulong Forest, or even of involvement in the management of any such project, raises a powerful case that Tyneside did not have the qualities referred to in the warranty, and no evidence was forthcoming to establish that he did have those qualities.
291This is then reinforced by other matters to which I have referred: the failure to ensure that there was a written contract in place with Delamere before works were commenced; the deficiencies in the management and co-ordination of the consultants; the reliance on Mr Winterbottom to perform many of the project management services for which Tyneside was responsible; and Mr Simpkins' recommendation that a project manager be appointed - implying that there was no effective project management by Tyneside. These matters confirm the conclusion, from the proved absence of relevant training, qualifications and experience in project management of developments even vaguely comparable to Pambulong Forest, that Tyneside did not have the qualities referred to in the warranty of competence.
292While it is entirely correct that merely establishing that certain things were not achieved does not mean that it was the manager's fault or that it was caused by want of skill etc, failures in achievement can illuminate deficiencies in the manager's qualities. The defendants' case that Tyneside lacked the experience, skill, competence or ability to perform the services is established by proof of Mr Haggis' lack of relevant training, qualifications and experience in management of projects of the relevant kind; confirmed by the various shortcomings in performance to which I have referred, which are manifestations of the deficiency of experience, skill, competence or ability; and not refuted by any positive evidence of possession of the relevant qualities.
293Accordingly, I conclude that as at the date of the Management Agreement, Tyneside did not have the skill, experience, competence and ability of a project manager of complex, very large-scale, green fields developments such as Pambulong Forest, and accordingly that the relevant warranty was not true or correct. Hammersmith was therefore entitled to terminate the Management Agreement and the Profit Deed, pursuant to clauses 12.1(c) and 12.1(b) respectively of those agreements.