Abigroup Contractors Pty Ltd v Peninsula Balmain Pty Ltd

[2001] NSWSC 752

Reported Decision: [2001] NSWSC 752
[2001] ACL Rep 100 NSW 7
(2001) ATPR (Digest) 46-213

New South Wales

Supreme Court

CITATION:	Abigroup v Peninsula [2001] NSWSC 752
CURRENT JURISDICTION:	Equity Division Construction List
FILE NUMBER(S):	SC 55034/99
HEARING DATE(S):	09/07/01, 10/07/01
JUDGMENT DATE:	3 September 2001
PARTIES :	Abigroup Contractors Pty Limited - Plaintiff Peninsula Balmain Pty Limited - Defendant
JUDGMENT OF:	Barrett J

COUNSEL :	Mr B.W. Walker SC/Mr I.D. Faulkner - Plaintiff Mr M.G. Rudge SC/Mr M. Christie - Defendant
SOLICITORS:	Clayton Utz - Plaintiff Deacons - Defendant
CATCHWORDS:	CONTRACTS - building, engineering and related contracts - adoption of report of referee - principles to be applied - TRADE PRACTICES - referee's finding of misleading and deceptive conduct in contract formation - materiality thereof - misrepresentation by silence - misrepresentation as to independence of superintendent - appropriate compensation
LEGISLATION CITED:	Trade Practices Act 1974
CASES CITED:	Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48 Leighton Contractors Pty Ltd v C E Heath Underwriting Services (1995) 8 ANZ Ins Cas 61-123 Jarvan Pty Ltd v John R Carr & Associates Pty Ltd (NSWCA) unreported, 1 December 1998 Franks v Berem Constructions Pty Ltd, unreported, 2 December 1998 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Turner Corporation Pty Ltd v Austotel Pty Ltd (1944) 13 BCL 378 Jennings Construction Ltd v QH & M Birt Pty Ltd (1986) 8 NSWLR 19 China Ocean Shipping Co Ltd v PS Chellaram & Co Ltd (1990) 28 NSWLR 354 Hook v Rolfe (1986) 7 NSWLR 40 Perini Corporation v Commonwealth (1969) 2 NSWR 530 Sutcliffe v Thackrah [1974] AC 727 Dixon v South Australian Railways Commissioner (1923) 34 CLR 71 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 Curwen v Yan Yean Land Co Ltd (1891) 17 VLR 745 Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 Australian Development Corporation v White Industries Ltd [2001] NSWCA 9 Lam v Austinel Investments Pty Ltd (1990) 97 FLR 458 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Cackett v Keswick [1902] 2 Ch 456 Breen v Williams (1996) 186 CLR 71 Pilmer v The Duke Group Ltd [2001] HCA 31 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 Trade Practices Commission v Milreis Pty Ltd (1977) 29 FLR 144 Trimis v Mina [1999] NSWCA 140 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Phillips v Ellison Brothers Pty Ltd (1941) 65 CLR 221 Craven-Ellis v Canons Ltd [1936] 2 KB 403 Hurley v McDonalds Australia Ltd (2000) 8 ATPR 41,741
DECISION:	Referee's report adopted with one variation. Plaintiff entitled to compensation under s.87 Trade Practices Act 1974

49

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CONSTRUCTION LIST

BARRETT J

MONDAY, 3 SEPTEMBER 2001

55034/1999 - ABIGROUP CONTRACTORS PTY LIMITED v PENINSULA BALMAIN PTY LIMITED

JUDGMENT

HIS HONOUR:

Introduction

1    The plaintiff (to which I shall refer as “Abigroup”) and the defendant (“Peninsula”) became the parties to an agreement dated 20 March 1998 for the performance by Abigroup of construction and related works for Peninsula’s development at Balmain. That development involved substantial reconstruction and refurbishment of two factory buildings (“Building C” and “Building P”) by way of conversion into residential flats, together with additional town house construction.

2    The proceedings were commenced in September 1999. Abigroup, at that point, sought payment of a progress claim made on 28 July 1999. On 12 October 1999, Peninsula filed a Cross-Claim seeking payment of liquidated damages. Following a notice given by Peninsula alleging a substantial breach of contract by Abigroup and requiring Abigroup to show cause why Peninsula should not exercise a contractual right to terminate, Abigroup purported to terminate on 1 December 1999. Thereafter, another contractor completed the works.

The parties’ claims in the substantive proceedings

3 In the proceedings as finally constituted Abigroup made a number of claims. Abigroup’s first claim was that Peninsula contravened sections 51AA and 52 of the Trade Practices Act, 1974, by, inter alia, failing to disclose to Abigroup before the contract was made the existence of an agency agreement pursuant to which the Superintendent was Peninsula’s agent in all matters relating to the design and construction of the Project. As a result, Abigroup contends, Peninsula and the Superintendent were unable to act in accordance with clause 23 because, in effect, the Superintendent “stood in the shoes” of Peninsula when making any decision or in issuing any instruction or certifying any matter. Abigroup claimed all of its reasonable costs as a consequence of entering into the contract, less what has been paid totalling $6,823,852.

4    In the alternative, Abigroup claimed that Peninsula repudiated the contract by purportedly terminating the contract and excluding Abigroup from site when it had no right to terminate and what would otherwise had been a right to terminate was rendered ineffective because of Peninsula’s prior breach. Abigroup claimed $6,823,852 as reasonable compensation for the work performed by it.

5    By way of further alternative claim, Abigroup sought payment of the following amounts pursuant to the contract:

Contract Works $ 417,606
Variations $ 1,916,303
Delay costs $ 2,582,502
TOTAL $ 4,916,411

6    Peninsula, for its part, claimed that it was entitled to terminate the contract pursuant to clause 44 or at common law on the basis that Abigroup had failed to proceed with due expedition and without delay, thereby breaching the contract. Peninsula claimed damages in the sum of $8,420,241.35, consisting of Peninsula’s costs to complete the project of $3,843,645 and additional marketing and holding costs, interest and delayed return on investment costs of $4,576,596.25. Peninsula also claimed in the alternative liquidated damages for late completion of $1,262,308.

The referee’s report and the parties’ reservations

7 On 2 December 1999, Hunter J ordered by consent pursuant to Part 72 rule 2(1) of the Supreme Court Rules that the whole of the proceedings be referred to Mr T.M. McDougall for inquiry and report.

8 The referee’s report was received by the Court in February 2001. Before me for decision are two Notices of Motion, one by Abigroup and the other by Peninsula. Each seeks adoption of the report pursuant to Part 72 rule 13(1) of the Supreme Court Rules although, in each case, with variations and exceptions.

9 Abigroup’s reservations about the report centre upon the referee’s finding that, when Peninsula decided to terminate the contract, it had ample justification for doing so on the basis of clause 44.2. It is the contention of Abigroup that Peninsula failed to reasonably consider whether to exercise its power under that clause; and that, in any event, the termination was ineffective or unconscionable and amounted to a repudiation which Abigroup subsequently accepted. Abigroup also asks the Court to make orders pursuant to s.82 or s.87 of the Trade Practices Act 1974 for the payment of money by Peninsula to Abigroup based on findings of the referee that Peninsula was in breach of s.52 of that Act. Under each of these alternatives, Abigroup seeks the payment by Peninsula of $2,874,814. Abigroup makes an alternative claim that specific findings of the referee on three particular matters should be rejected and other findings substituted.

10    Peninsula, for its part, submits that the referee’s report should not be adopted (and should be varied) in relation to seven discrete issues.

11 The findings of the referee may be stated relatively briefly. The referee found that Peninsula’s conduct in entering into the agency agreement and its failure to disclose that agreement to Abigroup was a misrepresentation in breach of s.52 of the Trade Practices Act 1974 and that if Peninsula had disclosed the agency agreement, Abigroup would not have entered into the contract or would have done so only after it had been amended. The referee also found that the action of peninsula engaging the Superintendent to act as its agent was a breach of clause 23 which obliged Peninsula to ensure that the Superintendent acted fairly and honestly. Having made those particular findings, the referee declined to decide the consequences of the breach of the Trade Practices Act and the continuing breach of clause 23.

12 The balance of the referee’s findings were subject to the Court’s judgment in respect of the issues concerning s.52 and clause 23.

13    The Superintendent extended the Date for Practical Completion to 26 April 1999. The referee found that the Superintendent should have extended the Date for Practical Completion to 5 June 1999, as a consequence of delays caused by Peninsula and the Superintendent.

14 Subject to the consequences of the findings on s.52 and clause 23, the referee found that Abigroup was entitled to approximately $2.5 million in respect of its claims for variations and delays.

15    The referee also found that towards the end of 1999, the officers of Peninsula and the Superintendent were of the erroneous belief that, if Peninsula was to complete the sale contracts for the apartments by 31 December 1999, the purchasers under those contracts could withdraw from them without penalty.

16 Subject to the consequences of the findings on s.52 and clause 23, the referee found that Abigroup failed to proceed with the works with due expedition and without delay; that Peninsula was not entitled to terminate the contract at common law; and that Peninsula was entitled to terminate pursuant to clause 44.4 of the contract, based on Abigroup’s breach.

17 Subject to the findings on s.52 and clause 23, the referee found that Peninsula was entitled to $1,342,500 in liquidated damages and $1,780,782 as its reasonable costs to complete the works.

18 Subject to the consequences of the findings on s.52 and clause 23 and questions of interest, in the referee’s opinion Peninsula was entitled to a net sum of $656,435 from Abigroup.

The approach to the parties’ present applications

19 Before turning to the particular matters arising from the referee’s report, I should outline the task of the Court in a matter of this kind, as I see it. The jurisdiction referred to in Part 72 rule 13(1) is both explicit and precisely defined. Except for one element (involving the possibility of the Court’s remitting a matter to the referee as contemplated by Part 72 rule 13(1)(c)), the relief sought by both Abigroup and Peninsula in relation to the report itself is confined to that outlined in Part 72 rule 13(1)(a) which says that the Court may “adopt, vary or reject the report in whole or in part”. The guiding principles for the Court in such a matter emerge, in large measure, from the observations of Gleeson CJ in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. A convenient list of relevant considerations extracted from that source is provided in the judgment of Hunter J in Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48. The substance of that list is as follows:

1. The hearing of a reference should not be equated with a hearing at first instance in this Court. So much may be extracted from the fact that a referee may be appointed by reason of his or her technical expertise (not necessarily in legal matters) and from the provisions of Part 72 rule 8.
2. It is untenable to construe the power of the Court under Part 72 rule 13 as falling within the umbrella of a proposition that all litigants are entitled to have a judge decide all issues of fact and law that arise in any litigation. The procedure that Part 72 rule 13 establishes is not that of an appeal from a referee to a judge. The concept of “a re-hearing” which is itself ambiguous, at best provides an imperfect analogy.
3. Part 72 rule 13 does not require a judge to reconsider and determine afresh all issues, whether of fact or law which a party desires to contest before the judge. It would be a radical departure from the history of the rules to treat them as giving a dissatisfied party an automatic right to a hearing de novo . What is involved in an application under Part 72 rule 13 is not an appeal, whether by way of a hearing de novo , or a more limited re-hearing.
4. In so far as the subject matter of dissatisfaction with a referee’s report is a question of law, or the application of legal standards to established facts, then a proper exercise of discretion would require a judge to consider and determine the matter afresh.
5. If the referee’s report reveals some error of principle, some absence or excess of jurisdiction, or some patent misapprehension of the evidence, that would ordinarily be a reason for rejecting it. So also would perversity or manifest unreasonableness.
6. In the case of findings of fact by the referee, where there is evidence to support such findings and the court is satisfied that those issues have been carefully considered by the referee it will not normally engage in a re-examination of the referee’s findings.

20 The matter was dealt with as follows by Giles J (as he then was) in Leighton Contractors Pty Ltd v C E Heath Underwriting Services (1995) 8 ANZ Insurance Cases 61-123:

“The principles which should guide me in considering the report have been discussed in a number of cases culminating in the decision of the Court of Appeal in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. A comprehensive summation can be found in Peabody Resources Ltd v Allco Constructions Pty Ltd (O’Keefe CJ Comm D, 14 March 1994, unreported). More shortly, a party dissatisfied with a referee’s report is not entitled to have the judge before whom it comes reconsider and determine afresh all issues whether of facts or law which it would wish to contest. Nor does the consideration of the report involve an appeal. Rather, the judge has a judicial discretion to exercise, a discretion which would normally be exercised by reconsidering a question of law or the application of legal standards to established facts, but otherwise may fall to be exercised having regard to matters such as the nature of the complaints, the type of litigation involved, and the length and complexity of the proceedings before the referee. Patent misapprehension of the evidence, or perversity or manifest unreasonableness in fact finding, would ordinarily preclude relevant adoption of or action upon the report, but a report may be adopted or acted upon even if upon reconsideration of the evidence the judge might have reached a conclusion different from that of the referee. In general, where there is shown to be evidence available to support a referee’s findings of fact, or where the issue involves a choice between conflicting evidence, in the exercise of the discretion the judge will not reconsider disputed questions of fact. But it is always a question of judicial discretion, exercised in a manner consistent with the object and purpose of the Rules and the place which they play in the administration of justice according to law.”

21 These observations (aspects of which were confirmed by the Court of Appeal in Jarvan Pty Ltd v John R Carr & Associates Pty Ltd, unreported, 1 December 1998 and Franks v Berem Constructions Pty Ltd, unreported, 2 December 1998) emphasise the limited role of the Court in a case such as the present. It would substantially defeat the purposes underlying Part 72 if the report of a referee was effectively overtaken by a detailed re-assessment of all matters when the Court came to consider the question of adoption. The counter-productive nature of any such detailed re-assessment is emphasised in a case such as this where the vast majority of the issues go to matters of a technical and practical kind, including discretionary matters, lying squarely within the province of a specialised and experienced practitioner of the kind to whom these proceedings were referred. The Court’s main function is to review general cogency. And where, as here, the referee has taken a particular issue to a point short of definitive legal conclusion, the Court may, of course, complete the task

22 In the present case, the contentions of Abigroup based on s.52 of the Trade Practices Act and clause 23 of the contract, if upheld, will, in the referee’s view, determine the proceedings as a whole. As will be seen presently, I have come to conclusions on the s.52 aspect which are favourable to Abigroup. I do not consider it appropriate, however, to confine myself here to that matter as my conclusions may be subjected to further review the outcome of which gives rise to a need for determination of the other points in issue. I shall therefore deal first with those other points and then turn to the s.52 and clause 23 aspect.

Abigroup’s objections concerning termination by Peninsula

23    Abigroup challenges the referee’s finding that Peninsula reasonably considered whether to exercise the power to terminate the contract. By doing so, it calls in question the validity of the purported termination of the contract by Peninsula, which purported termination was effected under clause 44.4 of the contract and in pursuance of a procedure which, in clause 44.2, requires the giving of a “show cause” notice by the principal. Relevant portions of that clause are as follows:

“If the Contractor commits a substantial breach of contract and the Principal considers that damages may not be an adequate remedy, the Principal may give the Contractor a written notice to show cause.
“Substantial breaches include but are not limited to -
(a) suspension of work, in breach of Clause 33.1;
(b) failing to proceed with due expedition and without delay, in breach of Clause 33.1.”

24 Related to this was a question whether the requirements of “reasonable consideration” enunciated in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 were imported into the contract.

25    The contention that the referee did not reasonably consider whether to exercise the power to terminate was based on the circumstance that the question had been approached by Peninsula on a false premise, viz, that the contracts it had with unit purchasers contained a “sunset clause” enabling those purchasers to terminate if Peninsula could not complete by 31 December 1999. That false premise, said Abigroup, caused Peninsula’s decision to be, in the words of Meagher JA in Renard, “distorted by prejudice and misinformation”.

26    The referee’s approach was, in effect, that the misapprehension about the content or effect of the contracts with unit purchasers was of little moment because there were practical and commercial imperatives towards securing settlement of sales by 31 December 1999 whatever the contracts might have provided. Those imperatives came from a combination of factors. Purchasers had been kept waiting much longer than anyone expected. The date 31 December 1999 and particularly midnight on that day had “an almost mystical importance”, no doubt because the units overlooked Sydney Harbour which was to be the site of spectacles and celebrations for the arrival of the year 2000. Continuing and mounting delay, the referee said, undermined “the need to keep people happy” and failure to try to do so “could have drastic consequences”. He concluded:

“There is, in my view, sufficient evidence to show that Peninsula considered the question before giving the notice to show cause.”

27    The reference here to “the question” is a compendious reference, as I understand it, to the totality of the considerations properly to be taken into account in exercising the powers available under the contract. Having regard to the role of the court in matters such as this and, in particular, to the aspects extracted above as items 4 and 5, I do not consider that rejection of this aspect of the referee’s report is warranted. It cannot be said that there was no reasonable basis for Peninsula to have acted as it did. The practical and commercial imperatives were no less forceful than a contractual imperative would have been.

Peninsula’s objections concerning extensions of time

28    Peninsula maintains that the referee understated Peninsula’s entitlement to liquidated damages by $720,000 by reason of extensions of time wrongly granted to Abigroup. The referee found that there were excusable delays of 77 days and that an extension of that duration was warranted. Peninsula says that the contractual mechanism prescribed by clause 35 for claiming extensions was not followed and that, as this was a pre-condition to an entitlement to extension, no such entitlement arose. It was accepted by the parties and the referee that the clause 35 process was not followed. However, the referee said that the superintendent possessed a unilateral power to extend time apart altogether from that process and that the superintendent should have exercised that unilateral power to give Abigroup the additional 77 days.

29    Clause 35.5 makes it clear that the superintendent does have a unilateral power of extension. Furthermore, the clause makes it plain that the lack of entitlement to extension on the contractor’s part is not a barrier to the exercise of that power by the superintendent. That power is additional to and separate from the regime under which the contractor may establish an entitlement to extension. Establishment of contractual entitlement without reference or resort to the superintendent’s unilateral power is to be distinguished from what is, in effect, the grant of indulgence in exercise of that power, which indulgence, by reason of its grant in accordance with the contract, comes to assume the character of entitlement.

30    Peninsula also contends that the purpose of the superintendent’s extending power was misunderstood by the referee. Peninsula’s submissions refer to a passage at p.1172 of the 11th edition (1995) of Hudson’s Building and Engineering Contracts:

“Provision is frequently made in building contracts for the architect or engineer to grant extensions of time for completion of the work where delay due to certain specified causes has occurred. At first sight such a clause appeared to be designed primarily for the benefit of the builder, since its effect, if the clause operated, will be to reduce or avoid his liability to pay liquidated damages in the event of the delay in question. This is certainly so where the delay is due to causes which the builder would otherwise be responsible, for example bad weather, or strikes. But as has been seen, such clauses are also of substantial benefit to the owner since, in the absence of an applicable clause of this kind, the liquidated damages provision will cease to have effect in those cases where the delay, or even a small part of it, is due to some prevention or default of the owner or his agents, or any other matter for which he would be responsible.”

31    I do not read this as suggesting that a unilateral power of the kind now under discussion exists prima facie for the benefit or protection of one party rather than the other. The concluding words of clause 35.5 - “for any reason” - show that the power is unconfined by considerations related to the identity of one party rather than the other as its apparent beneficiary, even though, no doubt, some proper and rational purpose must motivate a particular exercise. This, to my mind, renders somewhat irrelevant the debate in the submissions of counsel about the prevention principle and the observation of Cole J in Turner Corporation Pty Ltd v Austotel Pty Ltd (1944) 13 BCL 378:

“A party to a contract cannot rely upon preventing conduct of the party where it failed to exercise a contractual right which would have negated the effect of the preventing conduct.”

32    There is to my mind, no basis on which the Court should entertain, in relation to this part of the referee’s report, a degree of discomfort inconsistent with adoption of the report.

Peninsula’s objections concerning variations - time bars

33 The referee allowed variations in the sum of $1,092,525. Peninsula submits that Abigroup, by failing to make timely application under the contract, failed to satisfy a condition precedent to the recovery of those costs. The same submission is made in relation to delay costs of $948,390 consequent upon those variations which the referee found to be due to Abigroup. The relevant conditions precedent were, it is said, those imposed by clauses 40.2 and 46.1 involving notification of claims to the superintendent within a particular time. The importance of appropriate notification is clear. As Smart J observed in Jennings Construction Ltd v QH & M Birt Pty Ltd (1986) 8 NSWLR 19:

“Unless notice is given the contractor [in the case of a sub-contract] may not be alerted to the proposed claim and given the opportunity to investigate and check. The requirement of written notice, which is so common in construction contracts, puts the matter on a formal and readily identifiable basis.”

34    The referee found that clause 46.1 had no application to variations and this is clearly so to the extent that variations which were directed by the superintendent. This is the effect of its exception (ii).

35    As for clause 40.2, there is some doubt in my mind whether its notification requirements were complied with in all cases. However, the referee stated the following important conclusion:

“My conclusion is that the requirements of the contract as to timely notification were ‘on hold’ for most and probably all of the period that Abigroup was on site.”


Peninsula submitted that, for an estoppel to be established, Abigroup must show that Peninsula made a communication to it which “contained any promise or representation, express or tacit, or manifested any common assumption that the limitation provision would not be relied upon”: China Ocean Shipping Co Ltd v PS Chellaram & Co Ltd (1990) 28 NSWLR 354 per Gleeson CJ. Abigroup contends that the referee found that Peninsula acted on the basis that time bars would not be enforced and later sought to reject any claims on the basis of time bars. In the light of the referee’s express finding that timely notification requirements were “on hold” at relevant times, there is a clear basis on which an estoppel can be found to have operated to neutralise the condition precedent. The position reached by the referee therefore does not need to be disturbed.

Peninsula’s objections concerning delay cost rate

36    Peninsula says that delay costs are capped by the contract at $7,890 per day and that the referee has failed to recognise this, with the result that delay costs should be reduced from $948,390 to $591,750.

37    Abigroup submits that the “limit” of $7,890 is, in effect, illusory because it appears only in the tender form which, after directing attention to clause 36 of the general conditions, says that:

“(f) If the valuation relates to extra costs incurred by the Contractor for delay or disruption, the valuation shall include a reasonable amount for overheads but shall not include profit or loss of profit. ”

38    Clause 36 of the general conditions, however, contains an explicit requirement that the principal pay “such extra costs as are necessarily incurred by the Contractor by reason of the delay”. This is in a contractual context where, by virtue of paragraph 3 of the formal instrument of agreement, the general conditions are expressed to prevail over the tender documents in the event of a discrepancy or inconsistency.

39    It seems to me that there is an inconsistency. While the tender might purport or attempt to apply a daily limit (or, perhaps, a limit calculated as the number of days of delay multiplied by a stated sum), the provisions of clause 36 are very explicit in focussing on two specific factors, being extra costs in fact incurred and the necessity of incurring them. There is no room in that formulation for any daily rate or daily maximum and the situation is properly to be regarded as one of inconsistency. Both verbal specifications cannot operate concurrently.

40    The position reached by the referee is therefore not productive of discomfort of the kind which would cause the Court to decline to adopt this aspect of the report.

Peninsula’s objections concerning general damages

41    Peninsula complains that it has not been allowed general damages for losses and delay after termination. The referee allowed liquidated damages for delay up to termination, as well as the cost to complete. Peninsula says that the referee overlooked the question of general damages for the period after termination.

42    Abigroup says that the referee in fact dealt explicitly with three of the seven items referred to in Peninsula’s written submissions under this heading. This seems clearly to be correct. Abigroup also says that the remaining items have, by necessary implication, been taken into account in the referee’s exhaustive review of matters.

43    I accept Abigroup’s submissions. The requisite degree of comfort exists in relation to this part of the report.

Peninsula’s objections concerning costs to complete

44    Peninsula complains that, in calculating its entitlement for the cost to complete, the referee has made a deduction in respect of the cost of rectifying water damage resulting from a burst pipe. Peninsula says that the referee did not make a finding as to who should bear the responsibility for the burst pipe but there was evidence before him (which he did not deal with) from which it should be concluded that Abigroup bore responsibility.

45    Abigroup contends that the referee did make findings on the matter, those findings being, in effect, that Peninsula failed to discharge the onus of proof. Abigroup points to the following passages in the report:

(a) “ … it can equally certainly be said that Peninsula has failed to prove that the whole of the amount is part of the reasonable cost of completing the works” (at page 219.6);
(b) “I also concluded that this cost included costs of making good the water damage to an extent which was unknown and unprovable but which would justify disregarding the whole of it, on the basis that Peninsula had failed to prove what its true cost was of the finishing work which was unaffected by the flooding” (at page 246.8);
(c) “If, as a matter of law, it follows (as I would believe) that the whole of this cost should be disallowed, since it has not been adequately proved, Section 14.4.5 concludes that the most which could be allowed for the cost to complete is $1,093,078” (at page 251.4).

46    This seems to me to answer adequately the suggestion of Peninsula that the referee did not deal with the matter.

Abigroup’s delay claim - balconies

47    The referee found that 42 days’ delay on the balconies of one building (Building P) was concurrent with delays he found on the other building (Building C) and that, as a result, none of the 42 days’ delay was compensable.

48    Abigroup complains that, by August 1998, there was a total of 53 days’ delay on Building C and 25 days’ delay on Building P. Abigroup’s submissions were as follows:

“112. The delays to building C being greater than those to building P, made building C the critical building.
113. At the time of the 42 day delay in relation to the balconies on the west façade of building P, building P would have had a relative float to building C of 28 days (i.e. 53 days delay to building C less 25 days delay to building P).
114. Once building P was delayed by more than 28 days (i.e. after the float of 28 days, relative to building C, had been eroded) building P would become critical.
115. Hence, 28 days into the balcony delay, building P would become critical and the remaining 14 days delay (i.e. 42 days delay, less 28 days) would be a critical delay to the project, as well as to building P.
116. The Referee failed to take into account the criticality of building P once its float had been eroded in respect of the 42 delay. Abigroup submits that this issue should be referred back to the Referee for further consideration and report.”

49    Peninsula responds in several ways, including:

“6.4 The Referee’s finding on the independence of construction on buildings P and C coupled by the fact that there was not any resource effect of one building on the other, clearly indicates that the Referee was correct.”

50    It seems to me clear that, having regard to the referee’s findings at page 129 of his report, he was alive to the relevant issues and approached them in a cogent way. There is therefore no basis to seek to interfere with his finding.

Specific Variations - VPR 81

51    The referee determined under this heading that Abigroup was not entitled to a claim for some 49.5 metres of additional balustrade. Abigroup challenges this as to 12.5 metres (some $7,182) on the basis of a statement by the referee that an allowance for the shorter length would have been warranted, but that “the extent and effect of this was not followed up”. The claim now made is that the referee should have done something in favour of Abigroup which had been identified as potentially claimable by Abigroup but which it had apparently made a conscious decision not to pursue. Peninsula submits that, in those circumstances, the referee’s report should be left undisturbed. I accept that submission.

Specific Variations - VPR 103

52    This claim by Abigroup for variation was rejected by the referee by reference to clause 55.6 of the contract. The variation relates to some $40,000 of additional cost referable to a need to install driven tube piles instead of specified bored piles. The referee found that the bored piles could not be installed because of the location of, limited access to and limited headroom in the relevant area of the works. The referee regarded these limitations as within the concept of “buildability” which, by clause 55.6, was made, in Peninsula’s view, a risk of the contractor rather than the principal.

53    To be more precise, the contractor warrants by clause 55.6 that it has “thoroughly and comprehensively … informed itself of … the buildability of the Works”. Abigroup takes the point that it has not warranted “buildability”, merely that it has “informed itself” thereof. Peninsula says that, to construe the clause in such a way that it does not place the buildability risk at the feet of the contractor is to deprive it of all effect. On that, I accept the submission of Peninsula. A person who warrants that he has thoroughly and comprehensively informed himself of the scope and feasibility of his performing a particular task must thereby be taken to accept responsibility for consequences flowing from some observable or reasonably detectable obstacle. This is a corollary of the reality that, absent some special provision, the contractor’s skills are relied upon to achieve the specified result or to warn the owner or if the design (which may include specified methods of working) is likely to prove unsatisfactory: see Professor I.D. Wallace QC, “Thorn’s Case in Australia? No Change in Direction by the Canadian Courts”, (1999) 15 BCL 220. There is no basis on which the referee’s findings here should be disturbed.

Specific Variations - VPR 8

54    This variation relates to a sewer main that had to be diverted. The tender drawings contemplated that part of the main would be encased in concrete. After the need for diversion was established, it was found that, as a result of Sydney Water requirements, more concrete casing would be required.

55    The dispute here is, in essence, about whose responsibility it was to ascertain Sydney Water’s requirements in the first place. Peninsula seeks to rely on clauses 3 and 4 of Abigroup’s form of tender which seek to free Peninsula from liability and responsibility for information provided before tender and for errors and omissions therein. Abigroup’s response is that there was no error in or omission from the tender information: there was an alteration by Peninsula to the work required. Abigroup also points to clause 40 of the general conditions of contract (entitling Abigroup to additional payment for additional work), noting that, under paragraph 3 of the formal instrument of agreement (and as already noted), the provision in the general conditions prevails over the provisions in the form of tender.

56    Again, no basis for departing from the referee’s view of matters is sufficiently shown to justify the court’s doing so.

Specific Variations - VPR 50

57    This also arises from the sewer diversion. I accept on this Abigroup’s submission that the referee properly explored the factual issues and that his findings of fact should be accepted. As to quantification, the referee accepted value information from Abigroup’s hydraulic consultant over that from Peninsula’s quantity surveyor. No cogent reason why he should not have done so has been shown.

Specific Variations - VPR 51R

58    This variation relates to the demolition of the roof slab of Building P and what had been the roof slab of Building C. The referee had to decide whether this was part of Abigroup’s scope of work. The variation claim failed as to the first and succeeded as to the second. Peninsula submits that clauses 3 and 4 of the form of tender already referred to in relation to VPR 8 excluded Peninsula’s liability and makes, in effect, the same submission as in relation to VPR 8. For the same reasons as are discussed in that context, there is nothing to engender the degree of discomfort the Court would have to experience to warrant rejecting this part of the referee’s report.

Specific Variations - VPR 53R and VPR 80

59    VPR 53R relates to the cost of Abigroup cutting and subsequently reinstating concrete slabs on the floors of both buildings to lay hydraulic pipework. Peninsula says that this could have been avoided and an equivalent result achieved more expeditiously and at less cost by constructing a timber floor over the concrete and running the pipes between the two.

60    In this area, the referee declined to accept the evidence of two Peninsula witnesses in respect of buildability. Abigroup submits, and I accept, that it was open to the referee to do so and that there is nothing to suggest that he did not take into account all relevant evidence and considerations, including conclave debate. Again, therefore, there is nothing prompting relevant discomfort on the Court’s part.

61    At page 62 of his report, the referee makes it clear that VPR 80 should be determined on the same basis as VPR 53R. The same comments therefore apply.

Specific Variations - VPR 32

62    In the course of installing internal walls, Abigroup discovered a need to restore existing concrete beams where concrete had spalled and the exposed reinforcing metal was rusting. Peninsula submitted before the referee that the variation should be rejected because the resultant work was occasioned by a latent condition of the kind contemplated by clause 12 of the special conditions of contract:

“The Contractor accepts sole responsibility for and assumes the risk of all increased costs, losses and expenses arising out of the physical conditions and characteristics of the Site and its surroundings (including water, atmospheric and sub-surface conditions and characteristics) encountered in the execution of the Works.”

63 The referee took the view that the bracketed words beginning with “including” represented “the totality of what is covered”. Had those words been intended to indicate only examples or a part of the total subject matter, he said, an expression such as “including but not limited to” would have been used. I do not consider this to be consistent with approaches generally taken to definitions and specifications which use the word “includes”. To my mind, the items referred to in the bracketed section are no more than some of those intended to be covered. Reference may be made to the following extract from the judgment of Samuels JA in Hook v Rolfe (1986) 7 NSWLR 40:

“ ‘Includes’ is a word of extension and not of restrictive definition. In R v Hermann (1879) 4 QBD 284 at 288, Lord Coleridge CJ observed:
‘… The words “shall include” are not identical with, or put for “shall mean”. The definition does not purport to be complete or exhaustive. By no means does it exclude any interpretation which the sections of the Act would otherwise have, it merely provides that certain specified cases shall be included.’
Hence ‘includes’ denotes a legislative intention to enlarge the ordinary meaning of the word defined, unless, perhaps, the items included in the definition would fall within it. In that case the definition, though introduced by the word ‘includes’, might be regarded as exhaustive; YZ Finance Co Pty Ltd v Cummings (1964) 109 CLR 395 and R v McN [1963] SR (NSW) 186; 80 WN 608 are cases in which different results followed the application of Lord Watson’s latitudinarian test in Dilworth v Commissioner of Stamps [1899] AC 99 at 105-106. Dr D C Pearce in his Statutory Interpretation in Australia , 2nd ed (1981) at 115-118, favours the view that ‘includes’ should not generally be regarded as introducing an exhaustive definition, and quotes from Lord Selborne LC in Robinson v Barton-Eccles Local Board (1883) 8 App Cas 798 at 801:
‘An interpretation clause of this kind [ie one which uses the word “includes”] is not meant to prevent the word from receiving its ordinary, popular, and natural sense whenever that would be properly applicable; but to enable the word as used in the Act, when there is nothing in the context or the subject matter to the contrary, to be applied to some things to which it would not ordinarily be applicable.’ ”

64    There is, in the present case, the additional point that the “including” specification may well extend only to “surroundings”, so that it does not qualify or refer to “Site”. Atmospheric conditions and characteristics can only pertain to the surroundings. The same will often be true of water conditions and characteristics. “Site” is therefore to be given no more than the meaning derived from the clause 2 definition of that term as:

“… the lands and other places to be made available and any other lands and places made available to the Contractor by the principal for the purpose of the Contract.”

65    In a refurbishment or conversion project such as the present, existing structures should on this basis be regarded as part of the “Site”, being an element of “the lands and other places” to which the definition refers. As a practical matter, in any event, it is probably to be expected that the contractor will assume responsibility for whatever is necessary to bring the project to completion within the particular physical context of which existing structures form part unless, of course, the parties have seen fit to provide otherwise in their contract.

66    Peninsula’s submissions in relation to VPR 32 should therefore prevail. They are submissions going to the correct legal interpretation of the contract, a matter in which the Court will more readily intervened. That variation should be disallowed.

Specific Variations - VPR 64

67    This variation relates to the cost of lowering the surface of the carpark to allow clearance of 2100mm (instead of 2000mm) for vehicles. The referee had before him evidence in the form of minutes of meetings and a statement of Mr Clemesha. There is nothing to suggest that the referee did not consider the whole of that evidence and base his finding on it. There is therefore no ground on which the Court should feel relevant discomfort with the result reached by the referee.

Peninsula’s objections concerning delay costs

68    Peninsula submits that if Abigroup is not entitled to payment for Variations VPR 51R and VPR 53R, neither is Abigroup entitled to corresponding delay costs. As the disputes on those variations have been reserved in favour of Abigroup, the matter need not be pursued.

Abigroup’s objections concerning misrepresentation - the referee’s findings.

69 Having dealt with all other matters raised, I now turn to the principal issue concerning s.52 of the Trade Practices Act and clause 23 of the contract. In s.15.3 of the report, the referee deals with what he calls, for convenience, “misrepresentation”. The primary facts, as stated in Abigroup’s submissions to the referee, appeared to him to be undisputed. As recited in the report, they include the following:

“5. Until April 2000 Abigroup was unaware that the Superintendent had been appointed as Peninsula’s agent “ in all matters in relation to the design and construction of the project ”, pursuant to the Undisclosed Agency Agreement (see para. 15 of Abbott 3). There is no issue between the parties that Peninsula did not reveal to Abigroup the Undisclosed Agency Agreement, prior to contract.
6. Similarly, Abigroup does not dispute that it was aware prior to entering into the Contract, that Peninsula and the Superintendent were related entities and had common directors.
7. Mr Abbott readily agreed that before the parties entered into the Contract, he had made enquiries about the structure of the companies including the identity of Peninsula, the Superintendent and other related entitles (T710.23 to T711.34).
8. Mr Abbott went on to say that he discussed “ quite extensively ” the structure of the companies to the point that there was a running joke that Peninsula were having more trouble getting approved by Abigroup than Abigroup were of them (T711.36 to 47).
9. Mr Abbott explained that there was a meeting convened within Abigroup between Mr Brecht, Mr Hendry and Mr Abbott in respect of the structure of the companies and that it was “ touch and go ” as to whether Abigroup would proceed (T856.7 to T857.18).”

70    At the relevant time, Mr Brecht was the chief executive of Abigroup and Mr Abbott was a senior manager with responsibility for all Abigroup’s building projects in New South Wales. The reference in item 9 to “the structure of the companies” is a reference to information in the possession of Abigroup about directorship and other corporate links between Peninsula and the superintendent, The East Asia Property Group Australia Pty Ltd (“East Asia”).

71    The referee then referred to the following evidence of Mr Abbott:

“15. Thus unknown to me and Abigroup until April this year [i.e., 2000], EAPG had been appointed Peninsula’s agent “ in all matters relating to the design and construction ” of the Peninsula Balmain, including in relation to the provision of the services set out in clause 5.1, which includes services of the nature of EAPG’s functions as Superintendent under the Contract. Nor have I found anything in the Agreement which requires EAPG to perform those functions in accordance with the standards set out in clause 23 of the Contract.
16. Had I known of the existence of the Agreement prior to execution of the contract, I would not have recommended to Peter Brecht that Abigroup enter into the Contract, and Abigroup would not have done so.
17. Had I known of the Agreement, I would have sought one or more of the following changes:
(a) appointment of an independent third party as the Superintendent, such as a quantity surveyor or some other project management company;
(b) if EAPG was to remain as the Superintendent, appointment of an independent third party to perform the Superintendent’s certification functions under the Contract such as assessment of variations, delays and progress certificates;
(c) amendments to the Agreement which would have allowed EAPG to perform its functions under the Contract in accordance with clause 23 of the Contract.
Failing agreement to one or more of these matters, I would not have recommended that Abigroup enter into the Contract and it would not have done so.”

72    The referee also referred to the evidence of Mr Brecht:

“In determining whether to enter into the Contract, I relied upon the recommendation of Mr Abbott that Abigroup should do so. If he had recommended that Abigroup should not do so then Abigroup would not have entered into the Contract.

73    The referee then made two crucial findings:

“Consequently I find as a fact that, had the existence of this particular agency agreement been disclosed prior to contract, Abigroup would either not have entered into the contract or would have done so only after it had been amended on some mutually agreed basis.
Further, I find that not to disclose the existence of this agency agreement was misleading and deceptive, though not necessarily intentionally.”

74    As to the impact of what he considered to be the superintendent’s undisclosed partisanship, the referee made these observations:

“It is difficult, though, to say what the effect on the ultimate outcome would have been if the contract had proceeded on the basis of a truly independent third person as Superintendent. Abigroup would have received better consideration of, and earlier payment for, some of its variation claims. However the evidence of Mr Walker, as noted previously, is that it was able to fund the project without that (though undoubtedly less comfortably).
It would also have received some relief on time, though not enough to get it off the hook.”

75    Related to this is the issue of breach of clause 23 of the contract. That clause is as follows:

“The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent -
(a) acts honestly and fairly;
(b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time; and
(c) arrives at a reasonable measure or value of work, quantities or time.”

76    Abigroup contended that the superintendent was inhibited from discharging its functions as envisaged by this clause when it was also Peninsula’s “agent for all matters relating to the design and construction of the project”. Abigroup’s submissions were summarised by the referee as follows:

“(a) Peninsula never intended to be bound by clause 23 of the Contract as it had engaged the Superintendent to act as its agent in respect of all matters concerning the design and construction of the Project. In effect, the Superintendent was standing in the shoes of Peninsula;
(b) At no time during the course of the Project, did any representative of either Peninsula or the Superintendent pause to consider their respective roles vis a vis Abigroup’s Contract;
(c) It never occurred to Mr Clemesha to distinguish his role as development manager in respect of the marketing and sale of the apartments for Peninsula and his role as the Superintendent;
(d) Mr Clemesha had a personal interest in the project, and was thus never able to act independently and fairly;
(e) The Superintendent was unable to reasonably assess the variation claims as it was bound to ensure that Peninsula did not breach clause 3.3(b) of the Bill Facility Agreement;
(f) Mr Clemesha did not assess the variation claims as and when they came to him for assessment, nor did he assess them reasonably or fairly;
(g) Peninsula failed to ensure that the Superintendent arrived at a reasonable measure of time in respect of the delays caused by Peninsula and the Superintendent;
(h) Peninsula had determined that no further money would be paid to Abigroup from early October 1999, and took steps to implement that decision including steps to progressively transfer offshore all proceeds from the sale of apartments; and
(i) Peninsula was from October 1999 onwards acting under a definitive resolve or decision against doing what the Contract required, namely, pay to the Abigroup all sums of money (including for variations) due or those sums which would become due under the Contract.”

77    The referee’s findings on these aspects may be quoted in full:

“As to (a), Peninsula, by entering into the Agency agreement with EAPG, effectively inhibited the Superintendent from discharging the obligations of Clause 23. Whether that amounts to repudiation is a matter of law. For my part, I would regard it as something which can be cured by an appropriate award of damages. While it is wrong, it is common for Superintendents to have some restriction placed on their freedom to act. Clearly it should be disclosed at the outset.
Points (f) and (g) were then a consequence of this.
As to (d), it is correct that Mr Clemesha had a personal interest in the project, through the purchase and re-sale of a unit for a profit. While that would certainly direct him to ensure that the venture was a success, I don’t necessarily conclude that this would prevent him from acting independently and fairly vis a vis Abigroup.
I don’t think the other points are made our conclusively by the evidence.”

Abigroup’s objections on misrepresentation - assessment

78 The question in relation to the matters concerning s.52 and clause 23 is whether there are grounds on which it is open to the Court to depart from the findings of the referee and, if so, whether it should do so. As to the referee’s findings of fact, it has not been suggested that the position is otherwise than as contemplated by the sixth of the principles I have extracted from the judgment of Hunter J in Walter Construction Group. I therefore accept those findings of fact. In particular, I accept the crucial finding that had Abigroup been aware of the agency, it would “not have entered into the contract or would have done so only after it had been amended on some mutually agreed basis”. The only possibility I believe the Court may pursue, consistently with the fourth and fifth items on that list, is the possibility that characterisation of the conduct of Peninsula as misleading and deceptive and as entailing breach of contract was unwarranted.

79 A great deal turns upon the nature and significance of the role of superintendent in the context of this kind of construction contract. In the field of public sector works as it existed more than thirty years ago, the role was described by Macfarlan J in Perini Corporation v Commonwealth [1969] 2 NSWR 530 as follows:

“The characteristic of them [i.e., public works contracts] is that there is a person appointed on behalf of the government or semi-government body to supervise the execution of the contract on behalf of his employer. He is generally a senior engineer or a Director of Works or a principal architect or some other officer who, because of his technical qualifications and experience, is competent to undertake that work. He is, as I have said, an employee of the body on whose behalf he undertakes this work, but, in addition, the same cases show that he is commonly charged with a duty either of resolving disputes between the contractor and the body which employs him or in certifying as to the quality of the work done or the whole or part of the cost of doing that work. In my opinion the cases make plain that throughout the period of performance of all these duties, the senior officer remains an employee of the government or semi-government body, but that in addition and while he continues as such an employee he becomes vested with duties which oblige him to act fairly and justly and with skill to both parties to the contract.”

80 The duality in the role of superintendent is well recognised. In a typical case, the superintendent has a relationship with the principal which requires the superintendent to promote the principal’s interests. At the same time, the contract envisages that the superintendent will, as part of his or her retainer by the principal, perform certain functions which define the respective rights and obligations of the principal and the contractor. There is a clear expectation on both sides that those functions will be performed fairly and with a due measure of impartiality in order to give proper effect to the contract. This tension is examined and discussed by Mr J.B. Dorter in his article “The Superintendent”, (1985) BCL 230. The position was described by Lord Morris of Borth-y-Gest in Sutcliffe v Thackrah [1974] AC 727 as follows:

“Being employed by and paid by the owner he unquestionably has in diverse ways to look after the interests of the owner. In doing so he must be fair and he must be honest. He is not employed by the owner to be unfair to the contractor. If work to a certain specification is to be done under the contract there is neither unfairness nor partisanship in ensuring that the work is properly carried out. It would be unfair to the owner to permit work that is inferior to the contract terms: it would be unfair to a contractor to require work that is superior to the contract terms.”

81 As the passage from the Perini case shows, the superintendent may be an employee of the principal. Mr Rudge SC made the point that, in that common situation, the superintendent, as an employee, will always be the agent of the principal. But it is, to my mind, important to remember two things: first, that an employee, while no doubt having some authority as the employer’s agent, is virtually never constituted the employer’s agent in any fully comprehensive way; and, second, that employees are often charged, as an incident of the employment, with duties which involve their exercising some skill or function in an independent way and not as the employer’s agent. Typical examples are employees who act as internal auditors and internal lawyers for corporations. Such employees are valued by their employers for the independence of thought and action they bring to bear upon the tasks they perform in the course of the employment. The position of solicitor employees in this State is the subject of specific treatment in rule 4 of the Revised Professional Conduct and Practice Rules made under s. 57B of the Legal Profession Act 1987:

“A practitioner, who is employed by a corporation (not being a solicitor corporation) or by any other person who is not a practitioner, must not, despite any contrary direction from the practitioner’s employer, act as a practitioner in the performance of any legal work in breach of any of the provisions of the Legal Profession Act 1987 or these Rules.”

82    The same is even more clearly so, it seems to me, in the case of architects in private practice who are retained by clients to perform the dual function of designing buildings and otherwise providing professional services solely in those clients’ interests and then exercising a superintendency function at the construction stage when the clients’ interests are still being furthered but, in some areas, by the application of professional judgment and skill in an independent way. Such an architect may be an agent of his or her client to some extent but will also, virtually by definition, bring to bear a professional skill a hallmark of which is independence of action and independence of judgment.

83    In the present case, the superintendent did not possess any professional or other personal characteristic of the kind that might be possessed by an internal auditor, an employed lawyer or a practising architect. It is a corporation the only skills of which are the product of the skills of the individuals whose services it obtains through having those individuals as its directors, servants and contractors. While, within any corporation, some such individuals may have attributes of the kind discussed in relation to auditors, lawyers and architects, it is not really possible for the corporation itself to be viewed in that way.

84 Any argument as to whether, in the abstract, the superintendent may or may not (or should or should not) be an agent of the principal and, if so, what the parameters of the agency may properly be is an arid argument. The key consideration, to my mind, is one identified by Starke J in Dixon v South Australian Railways Commissioner (1923) 34 CLR 71. After referring to the role played by the engineer in relation to a particular contract - a twofold role as on officer of the principal “bound, as a matter of duty, to supervise the execution of the contract in the interests of the Commissioner” and as “a certifier, or ‘preventer of disputes’” - Starke J made this telling point:

“Both the parties contract on this basis, and rely on the engineer’s ‘professional honour, his position, his intelligence’ … [and] they rely also upon the fact that he is a distinguished officer in the Public service of the State of South Australia, and therefore by no means so dependent upon the railways Commissioner for his position and pay as is the engineer usually employed by the ordinary building contractor.”

85    Starke J continued:

“In this case, much turns, in my opinion, upon the fact, that (to use the words of Collins MR in Cross v Leeds Corporation (1902) 2 Huds.B.C. (4th ed.) at p.341) ‘the parties have not agreed - that is the plain English of it - for an impartial’ certifier or ‘arbitrator, because the person whom they have agreed upon as’ certifier or ‘arbitrator is one who it may be presupposed may have formed … an adverse opinion’”.

86    These extracts emphasise the vital significance of the basis on which the parties contract. In the process of contract formation, each of the principal and the contractor forms an opinion as to the suitability and acceptability, from its own selfish viewpoint, of the person proposed to be the superintendent. The parties contract on the basis of some common understanding of the quality of that person. More accurately, perhaps, the principal makes a choice to suit its own needs and, in effect, proposes the chosen person to the contractor which then makes its own assessment of the suitability and acceptability of that person as part of its decision whether or not to take on the assignment.

87    In the present case, the context in which Abigroup made its decision to contract was one in which Peninsula knew, but Abigroup did not, that the party proposed as superintendent was, by contract, constituted the agent of Peninsula in all matters related to the project. Abigroup had investigated other links between Peninsula and the proposed agent. Indeed, it had done so “quite extensively”. It had no knowledge of the agency link the nature of which will be mentioned in greater detail presently.

88 This leads to the question of the extent to which silence on a particular matter may be misleading and deceptive conduct within s.52. A useful starting point is the following observation by Black CJ in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31:

“To speak of ‘mere silence’ or of a duty of disclosure can divert attention from that primary question. Although ‘mere silence’ is a convenient way of describing some fact situations, there is in truth no such as ‘mere silence’ because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.”

89 As Davies and Einfeld JJ noted in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, the statement by Black CJ reflects the words of Higginbotham CJ in Curwen v Yan Yean Land Co Ltd (1891) 17 VLR 745:

“… concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation.”

90 As is recognised in these and other judicial statements (see, for example, those of Hill J in Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 and those of Handley JA, with whom Sheller and Stein JJA agreed, in Australian Development Corporation Pty Ltd v White Constructions Ltd [2001] NSWCA 9), the thing which makes silence unacceptable is the existence of surrounding circumstances giving rise to a rational expectation that information of some kind will be volunteered. The cases make it plain that the relevant notion is not one of a legal duty to warn; also that ordinary commercial negotiation and the driving of hard bargains are not qualified by some overriding duty to be solicitous of the welfare of one’s counterparty: Lam v Austinel Investments Pty Ltd (1990) 97 FLR 458. The quality and effect of silence are to be judged wholly by reference to the nature of the surrounding circumstances. The relationship between the parties, actual or potential, will be a relevant circumstance. This was confirmed by Black CJ and von Doussa and Cooper JJ in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 where the fact that persons disseminating information were directors of a company and that the recipients were the company’s members coloured significantly expectations as to what they should say.

91    In the present case, there did not exist between Peninsula and Abigroup any relationship of reliance or of a fiduciary nature of the kind involved in Fraser v NRMA. But neither, I suggest, did the principal enjoy complete freedom of action in what it said and did not say about the proposed superintendent when the contract was in the process of negotiation and formation. The contract, as it developed, envisaged particular roles for the superintendent. In line with common practice, those roles involved some independence and objectivity in the making of assessments and judgments. Implicit in the role was, of necessity, an assumption that the superintendent, although retained and paid by the principal, would be allowed by the principal the degree of freedom necessary to allow it to bring to bear the contemplated degree of independence and objectivity. It follows, as I see it, that the existence of any circumstance cutting across that assumption and known only to the principal should have been the subject of an expectation of disclosure to the contractor.

92 Silence in circumstances where an expectation of statement exists cannot be caught by s.52 unless the expected statement has some relevant quality of materiality. This is confirmed by the following passage in the joint judgment in Fraser v NRMA Holdings (above):

“Whilst s.52 does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members asked to consider a motion in general meeting, where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership.”

93 The applicable concept of materiality is, in my view, the one which has long been applied in relation to positive disclosure requirements. The position was stated thus by Farwell J (with whom the Court of Appeal agreed) in Cackett v Keswick [1902] 2 Ch 456:

“The test must be, Is the omission material? And if the Court sees that the fact omitted is of such a nature that it might reasonably deter, or tend to deter, the ordinary investor from entering into the contract, that is sufficient.”

94    The capacity of the undisclosed matter to affect conduct is therefore the distinguishing feature. The reference by Farwell J to “the ordinary investor” should be taken, in the present context, as a reference to the “ordinary” contractor - that is, a reasonable contractor acting rationally. This makes it necessary to look at the quality of the undisclosed matter in this case.

95    When Abigroup entered into the contract, it was unaware of the terms of an agreement dated 28 May 1997 between Peninsula (then named Waterview Properties Pty Ltd) and East Asia which became the superintendent. The agreement is entitled “Agreement for the Provision of Project Management Services”. This is the agreement referred to in item 5 of Abigroup’s submissions to the referee as the “Undisclosed Agency Agreement”. In particular, Abigroup was unaware of the existence of clause 2.2:

“The Principal [‘Abigroup’] authorises the Project Manager [i.e. East Asia] to act as the Principal’s Agent in all matters relating to the design and construction of the Project.”

The matters covered by this clause included the functions of East Asia as superintendent under the building contract.

96    It was in relation to this agreement that the referee made his crucial finding that, had the existence of the agreement been disclosed beforehand, Abigroup would either not have entered into the contract or would have done so only after it had been amended on some mutually agreed basis.

97    The reason for Abigroup’s attitude is not difficult to understand. It is stated in article 39 of the sixteenth edition of “Bowstead and Reynolds on Agency” (1996) by F.M.B. Reynolds at p.175:

“Subject to any special circumstances indicating the contrary, the agent is bound to obey all lawful and reasonable instructions of his principal in relation to the manner in which the agent carries out his duties.”

98    The explanatory text following that statement of principle says:

“There is little direct authority for the proposition contained in this Article, for it is almost self-evident. The instructions must not extend the ambit of the original contract: they must not compel the agent to do anything not originally contemplated as coming within the scope of what he promised to do …”

99 There is another aspect as well. The conferral of comprehensive authority through the general agency appointment necessarily carried with it a responsibility to exercise the authority for a proper purpose and in the interests of the principal. That responsibility arguably gave rise to fiduciary duties, particularly in light of general approaches which regard the relationship of principal and agent as a fiduciary one. Those duties are proscriptive. They preclude the obtaining of any unauthorised benefit from the relationship and require that any position of conflict be avoided. Such an analysis in the joint judgment of Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 was repeated by McHugh, Gummow, Hayne and Callinan JJ in Pilmer v The Duke Group Ltd [2001] HCA 31.

100    Against this background, it is understandable that Mr Abbott of Abigroup (or any other reasonable person in his place) should have taken the view that a superintendent which was the agent of the principal in all matters concerning the project stood on quite a different commercial plane from one which was not such an agent. The undisclosed agency should therefore be regarded as a material consideration in the decision to accept a contract naming the agent as superintendent. By failing to make that material disclosure in the particular context, Peninsula led Abigroup into an erroneous understanding about a central feature of what was to become the contract between them. Peninsula’s conduct was therefore misleading or deceptive and the referee’s finding in that respect was fully justified.

101 The referee’s finding that Abigroup would not have entered into the contract had the existence of the agency agreement which actually existed been disclosed in advance is of particular significance to the question whether a case for rescission under s. 87 of the Trade Practices Act might have been established. It is, I think, instructive to address that question since, although Abigroup does not in any formal sense seek such rescission, an assessment of the result of the s.52 based claims actually made by Abigroup would be assisted thereby.

102 For rescission under s.87 to be available, it is necessary for the Court to find that the party seeking rescission “has suffered, or is likely to suffer, loss or damage by conduct of another person” contravening the Act in a relevant way. That focuses attention on the question whether, in the present case, Abigroup suffered, or was likely to suffer, loss or damage “by” the conduct of Peninsula already identified as caught by s.52, namely, failing to inform Abigroup of the existence and terms of the agency agreement. Because of Abigroup’s stated position, as accepted by the referee, that question is really whether Abigroup suffered relevantly by entering into the contract rather than refraining from doing so. I do not think it is possible to decide whether it suffered (or was likely to suffer) by entering into the contract in fact made rather than some other contract on a “mutually agreed basis” as the range of other contracts theoretically possible is large and there is no way of finding which possibilities may be considered realistic.

103 I have used in this formulation the words “suffered relevantly” as a shorthand way of referring to the subject matter of the inquiry dictated by s.87. This is a partial reflection of the description of the inquiry by McHugh, Hayne and Callinan JJ in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494:

“But the inquiry remains an inquiry about whether it is likely that as a result of the contravention the party concerned will suffer some prejudice or disadvantage.”

104    Their Honours earlier said:

“The central inquiry is what consequence has the contravention of the Act had on the party in question. That requires comparison between the position in fact of the party which alleges loss and the position that would have obtained had there been no contravention.”

105    The relevant concept of “prejudice or disadvantage” was explained thus:

“A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted.”

106 In this respect, I accept the submission of Mr Walker SC for Abigroup that that party was worse off by having entered into the contract, because it thereby came to occupy a position where the cost of performing the contract into which it would not have entered if aware of relevant matters was greater than the consideration provided under the contract; also because the contract caused it to be exposed to and to have to resist the claims made by Peninsula. These consequences would never have befallen Abigroup had it not entered into the contract. This is significant in the s.87 context where not only loss or damage already accrued but also loss or damage likely to result from the contravention may be taken into account. I do not read the caveat of McHugh, Hayne and Callinan JJ in Marks regarding the decision in Demagogue Pty Ltd v Ramesky (above) as detracting from this analysis in the present case.

107    I turn now to the question whether this is a case in which the Court might have made an order declaring the contract void. I do so because although such relief is obviously not sought, I think the answer to the question will be instructive in determining the appropriate relief.

108 A particular point made in Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324, which is also relevant here, is that an assertion that a party misled would have entered into a different contract if in possession of the true facts must be approached with considerable caution. The reality, in such a situation, is that the party misled would not have entered into the contract which was in fact made and from which that party, having discovered the true position, wishes to be released. I therefore put very much to one side, in terms of relevance, the referee’s finding that, had Abigroup been aware of the existence and effect of the undisclosed agency agreement, it would have insisted on revisions before committing to the contract. The relevant reality is reflected by the primary finding that Abigroup would not have committed to the particular contract into which it in fact entered. It is appropriate, in my view, to approach the matter by reference to that actual contract alone.

109 The breadth of the statutory jurisdiction to declare contracts void under s.87 was the subject of particular analysis and comment in Tenji. The position was summarised thus by Carr J:

“I think that Parliament’s intention was quite clearly to confer on the Court wide discretionary powers, including the power to declare contracts void ab initio, in circumstances where the common law would not provide a basis for the grant of such relief.”

110 This emphasises the status of the statutory jurisdiction as something independent of and not confined by general law principles. So much is authoritatively stated in Marks. Moreover, as the detailed analysis in the judgment of French J in Tenji shows, that jurisdiction has developed very significantly from its originally perceived status as an “ancillary” measure “which would only occasionally be found appropriate to be applied”: Trade Practices Commission v Milreis Pty Ltd (1977) 29 FLR 144 per Bowen CJ. The added vitality is a product of both statutory amendment and judicial decisions. The scope of the jurisdiction was stated thus by French J:

“The effect of an order for avoidance of a contract under s.87 is to be equated only in a limited sense to that of an order for rescission in equity. For orders made under s.87(2)(a) declaring a contract void in whole or in part and ab initio or from a later date have their effect entirely by operation of the statute. The other element which is of importance in this case is the compensatory principle that informs the exercise of the power conferred by s.87. That principle derives from s.87(1) which conditions the power to make orders under the section upon the Court considering that the orders concerned will compensate a party who has suffered or is likely to suffer loss by reason of a contravention in whole or in part for the loss or damage or will prevent or reduce the loss or damage.”

111 Thus understood, s.87 would have been, to my mind, a clear source of power for the Court to make in this case an order declaring the building contract between Peninsula and Abigroup to be void ab initio. Given the nature and effect of the misrepresentation by Peninsula, as examined above, and the referee’s express finding that Abigroup would not have entered into this contract if aware of the true position, I believe this would have been an appropriate case for the making of such an order.

112    Once a contract of this kind is seen to be void ab initio by force of the statute as activated by the Court’s order so that it is to be regarded as if it had never been in force, the whole of its liability framework falls away and there is no contractual measure according to which the remuneration to which the contractor is undoubtedly entitled for the work done may be determined. The way is therefore open for restitutionary principles to operate, freed from the constraints discussed by Mason P in Trimis v Mina [1999] NSWCA 140, the case which was the source of the possible reservation expressed by the referee:

“No action can be brought for restitution while an inconsistent contractual promise subsists between the parties in relation to the subject matter of the claim. This is not a remnant of the now discarded implied contrary theory of restitution. The proposition is not based on the inability to imply a contract, but on the fact that the benefit provided by the plaintiff to the defendant was rendered in the performance of a valid legal duty. Restitution respects the sanctity of the transaction, and the subsisting contractual regime chosen by the parties as the framework for settling disputes. This ensures that the law does not countenance two conflicting sets of legal obligations subsisting concurrently.”

113    Restitution on the basis of quantum meruit for work done under a purported but void contract is a well established head of relief which both pre-dated and survived the shift away from the implied contract theory (see Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221). It is sufficient to refer to an observation of Starke J in Phillips v Ellison Brothers Pty Ltd (1941) 65 CLR 221, supported by a reference to Craven-Ellis v Canons Ltd [1936] 2 KB 403:

“So also it has been held that a person who rendered services under an agreement which was in fact void was entitled to recover for the services rendered upon the basis of a quantum meruit .”

114    The referee has expressed the opinion that the reasonable remuneration of Abigroup upon a quantum meruit, after allowing for sums already received, is $2,874,817. In accordance with the approach the Court should take in a matter of this kind where the referee has looked into the details of the figures and the particular aspect does not seem to be challenged as to its calculation, there is no need for the Court to go into that calculation.

115    This discussion of quantum meruit is, in a sense, beside the point since Abigroup does not seek relief on that basis. Rather, it seeks damages in the same amount, namely, $2,874,814. The quantum meruit analogy reinforces the appropriateness of that sum by way of damages or, more accurately perhaps, as compensation in a sense which is undefined but which s. 87, by using in sub-s.(1A) the word “compensate” is sufficiently wide to accommodate, particularly in light of sub-s.(2)(d). The conclusion that damages should be awarded is in any event independently available via s. 82. The relevant elements of inducement and reliance under that section are, to my mind, present. As has been pointed out on more than one occasion already, there was clear evidence before the referee that, had Abigroup known of the agency terms applying as between the principal and the superintendent, it would not have entered into this contract. The clear cut nature of that finding, with its obvious implications for inducement and reliance, is in no way blunted by the concurrent finding that, in the alternative, Abigroup would have sought amendments. In contradistinction to those in Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601 (where the evidence showed only that the tenant would have sought changes to the lease had it known the true position), the facts of this case show that the contract would not have come into existence had the true position been made known.

116 Abigroup bases its Trade Practices Act claim not only on s.52 but also on s.51AA. I do not think, however, that the latter provision is of assistance to Abigroup. The unconscionability by reference to which s.51AA operates involves condemnation according to “a perjorative moral judgment”: Hurley v McDonalds Australia Ltd (2000) 8 ATPR 41-741. The cases also show that some relationship entailing dependency and vulnerability is likely to be a feature of a situation within the section. No such element was at work as between Abigroup and Peninsula.

117 I have not, to this point, pursued the question concerning clause 23 of the contract and the impact, in that context, of Peninsula’s misrepresentation. In view of my findings in relation to s.52, there is no need for that aspect to be examined, although my general comment is that the same consequences would probably have followed.

Conclusion

118    The appropriate orders for the Court to make are:

(a) an order, pursuant to Part 72 rule 13(1), that the report of Mr T.M. McDougall dated 19 February 2001, together with the supplementary report dated 27 February 2001, delivered to the Court be adopted, varied by disallowing the variation VPR 32; and
(b) an order, pursuant to s.87 of the Trade Practices Act 1974, that the defendant pay compensation to the plaintiff.

119    The amount of the compensation to which the plaintiff is entitled is prima facie the quantum meruit sum referred to in the referee’s report (i.e, $2,874,817), but there is a question whether this should be adjusted by the sum of $9,113 involved in VPR 32 which should not have been allowed. There should also be interest in accordance with Schedule J to the Supreme Court Rules.

120    I direct that the parties bring in submissions on the date from which interest should be computed, the final quantification of compensation and interest on the basis I have described and on the question of costs. I further direct that those submissions be delivered to my Associate (and by each party to the other) not later than 21 days from today. I shall then list the proceedings for such further argument as is necessary and so that the orders may be formally made.

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Last Modified: 09/04/2001