Amann Aviation Pty Ltd v Commonwealth of Australia
[1988] FCA 740
•21 Feb 1988
WDGMENT No. 7~bw.."
CATCHWORDS
Contract - Whether statements were promissory - construction - bre'ach - estoppel or "unconscionable" conduct - duty to co-operate in the performance of the contract - "show cause" provision - whether Secretary of Department acting in arbltral or qua,ii-judicial capacity under show cause provision - measure of damages - whether chance of exercise of power to cancel under show.cause provision should be taken into account in assessing damages - proper measure of damages - whether "reliance" damages available - whether permissible to "pierce the corporate veil" in assessing damages.
Evidence - Inference that may be drawn from failure to call evidence - whether available in the case of expert testimony.
Evidence - Judicial notice - whether judicial notice may be taken of time of commencement of "wet" season in Northern Australia.
AMANN AVIATION PTY. LIMITED v. COMMONWEALTH OF AUSTRALIA
21 December 1988 No. G667 of 1987
Beaumont. J.
Sydney
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) NO. G667 Of 1987 1
DIVISION GENERAL )
BETWEEN: AMANN AVIATION PTY. LIMITED Applicant
- AND : COMMONWEALTH OF AUSTRALIA
RespondentMINUTES OF ORDER
Judge making order: Beaumont, J.
Date order made: 21 December 1988 Where made: Sydney THE COURT ORDERS THAT:
1. The respondent pay the applicant he sum of $410,000.00.
2. The
costs of and incidental to the proceedings, to be
taxed.respondent pay one-half of the applicant’s
Note: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
- INDEX
Sublect Page Introduction 1 Surveillance of the northern coastline 2 The tender 3 Elaboration of the tender 5 Acceptance of the tender 6 Proposals for the commencement of operations 7 The commencement of operations 22 Termination of the contract 23 The issues arising on the pleadings 25 The grounds for termination stated in the
notice dated 12 September 29
The documentation of the contract 29
The "Conditions of Tender" (Section 1) 30
The "Conditions of Contract" (Section 2 ) 34
The "Specificat ,ion for Charter Aircraft Task"
(Section 3) 36 The Schedules (Section 4) 40 The "Form of Tender" 43
The correspondence referred to in the letter of
acceptance 43
Steps taken by the applicant to prepare for
performance 50
The flying schedule for 12 September 54 The flights undertaken by the applicant on
12 September 55
Construction of the material provlsions of
the contract 56
1. The period of the contract (cl. 2.4) 56 2. Liquidated damages, default and
termination (cl. 2.22; 2.23; 2.24). 50
3. Aircraft requirements (cl. 3.3) 6 5 4. Aircraft availability (cl. 3.11) 6 5
5. Suitability of equipment (cl. 3.15) 66 6. Technical data provided by the applicant
in the Contract Schedules and in the correspondence 66
(a) Commencement of the service 6 1
(b) Aircraft availability The first issue:
68
Did the Commonwealth give a
notice to show cause as required by cl. 2.241 1 5
The second issue: What general principles
determine the measure of damages? 84
The third issue: In assessing damages, should
it be assumed that the Commonwealth would have
exercised its power under cl. 2.24 to determine
contract the event? in any 0 5
Could the Commonwealth have issued a
100 notice? cause" "show Did the applicant make the flights programmed
100 September? 12 for
Did the applicant provide "sufficient"
September? 102 12 on aircraft
Were the aircraft suitable and fully equipped 103on 12 September?
Is the Commonwealth now estopped from
bceaches? 104 these on relying Would it have been "unconscionable" for the
Commonwealth to give a "show cause" notice? 122
Did the Commonwealth fall to co-operate in
the performance of the contract? 124 - Wing spar inspection procedures 124 - "Concession" by reason of U.S. Export
Certificate of Airworthiness 136
- Preparat~on of formal contract documents 137
Other allegations of estoppel, waiver,
unconscionable conduct and failure to
co-operate by the Commonwealth 138 FOUL- breaches established 138 Would the Commonwealth have issued a
"show cause" notice? 139 Could the Commonwealth have exercised its
power to cancel under cl. 2.241 141 Did the Commonwealth have a duty to act fairly
to the applicant in considering whether to
exercise its power to cancel under cl. 2.247 142
Would the Commonwealth have exercised its
power to cancel? 146 - The significance of the applicant's failure to complete all the flights
scheduled for 12 September. 150
- The significance of the applicant's
failure to provide sufficlent suitable
and fully equipped aircraft on
12 September. 154
(1) Insufficient aircraft 154
( 2 ) Lack of endurance 155 ( 3 ) Bubble windows 163
(4) Drop hatch 166 (5) Observers' seating 167
(6) Avionics not fitted 169 ( 7 ) Air-conditioning equipment not lnstalled
not or functional 169
( 8 ) Intercommunicatlons system not
functional 169 - Given the significance of the breaches,
what chance was there of cancellation? 170
The fourth issue: what loss did the applicant suffer as a consequence of the loss of the benefit of the contract?
174
Claim for repayment of security deposlt 178 Claim for damages for negligent mlsstatement 180 Summary of conclusions 180 cos tS 182 Orders 183 Appendix 1 - Flights scheduled for 12 September 1987.
Appendix 2 - Particulars of offices held by persons referred to In the reasons for
judgment.
Appendix 3 - Findings on material allegations
in the pleadings.
- The applicant's Revlsed New Points of Claim - The Commonwealth's Defence - The applicant's Reply
Appendix 4 - Fuel costs
- Did the rise and fall provision apply to Avtur fuel? - What would have been the applicant's fuel costs?
Appendix 5 - "Interest" or other cost of serviclng
the borrowing necessary to fund the acquisition of the aircraft.
Appendlx 6 - The applicant's other claims for
damages.
- "Reliance" loss.
- The claim for loss of goodwill.
- The claim for loss of the prospect of other contracts.
IN THE FEDERAL COURT OF AUSTRALIA ) )
NEW SOUTH WALES DISTRICT REGISTRY ) No. G667 of 1987 ) GENERAL DIVISION )
BETWEEN: AMANN VIATION PTY. LIMITED Appllcant
AND : COMMONWEALTH AUSTRALIA OF - Respondent
CORAM: BEAUMONT, J.
PLACE: SYDNEY -
DATE: 21 DECEMBER 1988 - REASONS FOR JUDGMENT
Introduction
Amann Aviation Pty. Limited ("the applicant") sues the Commonwealth for damages for breach of
a
contract made between
them in March 1987. Under the contract, the applicant agreed to
supply aerial Commonwealth. But on the day that the appllcant commenced its
coastal
surveillance
charter
services
to
the
air patrol operations, 12 September 1987, the Commonwealth
purported to terminate the contract. The appllcant claims that
this termination was wrongful and was thus a repudiation of the contract by the Commonwealth for which the Commonwealth 1s liable
The contract, but contends that sufficient grounds exlsted to lustlfy Commonwealth acknowledges the maklng of a
in damages.
the termination. There is a contest between the parties as to
the true meaning of their agreement and as to the level of L .
performance offered by the applicant under it. If, contrary to its contention, the Commonwealth be held liable for breach of contract, there is a dispute as to the measure of the loss
suffered by the appllcant. It claims substantial damages, primarily by way of compensation for the loss of proflts it claims it would have earned if it had been permitted to perform the agreement. The Commonwealth, on the other hand, says that the applicant suffered no loss because it would have lost money on the contract in any event. The applicant also sues for damages for negligent statements alleged to have been made on behalf of the Commonwealth.
Surveillance of the northern coastline
The Commonwealth has established a programme for the
surveillance of Australia's northern coastline. Its earlier history is described in the report by the House of Representatives Standing Committee on Expenditure (May 1986),
especially ch. 2 . The programme reflects the Government's
concern about smuggling, unauthorised landings, quarantine
breaches and other Illegal activities. From a quarantine viewpoint, the most significant feature of the surveillance
arrangements is a daily aerial littoral search. The purpose of the search is to locate, and provide a basis for reaction to, unauthorised landings and other activities which may pose a risk
of the introduction of exotic diseases into Australia. The aircraft carrying out the littoral coastwatch may also be
required to provide a search and rescue service in emergencies.The tender
On 27 August 1986, the Commonwealth called for the provision of aerial coastal surveillance
for
tenders
in Northern
Australia. The general area to be covered was from Karratha in Western Australia to Cairns in Queensland. The conditions of contract referred to in the tender issued by the Department of Transport ("the Department") wlll be discussed in detail later. They provided that the contract would be in force for the number
of Acceptance. The contractor was to take over the sectors that aircraft operation specified in the Notice of
of months
it
contracted for from the existing contractor on a sector by sector
basis as
Acceptance and expiry of the existing contract. (The existing
contract was that between the Commonwealth and Skywest Airlinessoon as possible after receipt of the Notice of
Pty. Ltd. ("Skywest") then due to expire on task required of the charter aircraft was the visual search of a
31 March 1987.) The
defined "Littoral nominated by the Department during defined daylight hours. The
Area"
and
certain
other
areas
in
sectors
surveillance portion of the task was to be flown at not less than 140 knots IAS (indicated air speed) nor more than 160 knots IAS, and normal operating altitudes were to be between 500 to 2,500 feet. The primary purpose of the aerial surveillance operations was to provide reports to the Department of vessels, aircraft and
other activities information was "wide and may relate to The Australian Federal
ighted
uring
the
flights.
The
range
of
Police, Health, and safety at sea aspects
Immigration,
Customs,
Fisheries,
environmental
..." The littoral search was primarily
concerned with the detection, for quarantine purposes, of unauthorised landings. The aircraft used was to be a "sultable multi engined aircraft" wlth the equipment and capabllitles then specified. The aircraft had to have "endurance of 5 hours on task at an operatlng level of 500 feet AGL [above ground level]
within the 140-160 knot range IAS plus transit of one hour at normal cruise plus IFR [instrument flight rules] reserves applicable to the entire flight carrying 5 people including the pilot". The contractor was to "provide sufficient alrcraft to
undertake the task making necessary allowance for scheduled
maintenance". The contractor was to provide a specified minlmum
number of backup aircraft relative to the number of "contracted operating aircraft". On 25 November 1986, Mr. Robert Amann, on behalf of the firm of R. L P. Amann Aircraft Hire, submitted a tender. Mr. Amann stated that it was intended to import alrcraft from the U.S.A. and then place them on the Australian register; and that
suitable aircraft had been "sourced" and "options placed for a
period of ninety ( 9 0 ) days." The tender stated that the bases
tendered for were Broome, Darwin, Gove, Weipa, and Cairns. The
aircraft proposed were sald to be of the Rockwell Commander type, 680F and FL models, manufactured by "Gulfstream American"; registration numbers were to be advised. To supplement these aircraft, a Beechcraft Queen Air and a Beechcraft Duke would be available. The time needed to make aircraft available for commencement of air patrol from date of letter of acceptance was said to be six months "totaled [sic] (but 1s negotiable) and aircraft availability will be progressrve."
Elaboration of the tender
By letter dated 11 December 1986 elaborating hls
tender, Mr. Amann stated that he tender was "based upon
utilising eleven operatlng alrcraft and three 100% task ready
backup aircraft converted to task ready
and
two
other
aircraft
that
can
be quickly
requirements.". Mr. Amann also stated
that he "would ... expect to become fully operational at all
bases...within six months, with the operation of each base belng progressive, the minimum time requirement".
Mr. Amann's tender representatives of the parties held on
was
discussed
at
a
meeting
of
7 January 1987. According
the
aircraft fitted out plus 2 spare aircraft not fully fitted out";
that the aircraft were "to be standardised (Aero Commander 680)meeting by one of the Commonwealth's
to a report of representatives, Mr. Amann said that
it was "proposed to use 14
and purchased aircraft "will be purchased and fully fitted out
from
one
source
at
this
stage";
and
that
the
in U.S.A." MC.
Amann agreed However, he also said that, after the meeting,
that
he
report
was
ubstantially
accurate.
he explalned to
some of the Commonwealth officers that only 11 aircraft would be
committed to additional three aircraft that can be used for coastwatch, and
the
coastwatch
task
and
that
"we
will
have
an
additional two aircraft that can be made available for coastwatch, if required."
By letter dated 8 January 1987, Mr. G.B. Richardson,
Director of Supply and Services, Department of Transport, wrote to Mr. Amann referring to the meeting of 7 January and seeklng further details of the tender. A "more definitive work plan" was
requested. By letter dated 12 January 1987, Mr. Amann informed the Department that, "[blased upon a contract award of early
March 1987, we would become operational at our main base Darwin by the end of June 1987, Broom [sic] the beginning of July, Weipa
by mid-end July, Cairns by the end of July, and Gove by the end
of July early August."
that any contract be awarded to the applicant rather than to his
firm.In this letter, Mr. Amann requested
Mr. Amann and Several aspects of the tender, particularly
Mr. Richardson met on 16 January 1987.
Mr. Amann's costings,
were discussed. On 17 February 1987, Mr. Amann applied to the
Department of Commander aircraft. They were said to
Aviation
for
permission
to
import
12
Rockwell
be of the 680FL or 680W
models but no other details were given.
By letter to Skywest dated 11 March 1987, the Department confirmed its agreement with Skywest that the existing coastal
surveillance charter services contract was to be extended for a
three month period expiring on 30 June 1987. Acceptance of the tender By letter dated 12 March 1987, the Department informed the applicant that its tender had been accepted "subject to your
company e tering Commonwealth...The contract
formal
a
agreement
to
wi h
the
documents will be sent o you
shortly." (In fact, no formal contract was executed.) The letter stated that the contract would "be in force for a perlod of 8 X 36 aircraft months." It was also stated that the aircraft accepted were Rockwell Commander 680FLs to operate out of bases at BrOOme, Darwin, Gove, Weipa and Cairns at rates of charge then specified. Receipt of the letter was acknowledged by Mr. Amann on behalf of the applicant on 13 March.
Proposals for the commencement of operations
On 19 March, Mr. Amann gave the Department some of the
serial numbers of the aircraft he proposed to import which were being modified in the U.S.A. He also provided the Department with a "Proposed Phase in Program" which contemplated starting
operations at the five bases over the period from early May to early July. He said that these timings were sub~ect to, inter alia, suppliers meeting deadlines.
On 24 March, at a meeting between representatives of the
applicant and of the Department of Aviation, it was proposed byMr. Amann that all bases be "fully operational" within six months
of 12 March. On 27 March, Mr. Amann wrote to Mr. Richardson amending the phase-in programme given on 19 March in minor respects. All aircraft were to be operating by 11 July but this was still subject to suppliers meeting deadlines and it was also said to be subject to the Department of Aviation's Airworthiness Certification.
The parties met again on
the applicant had at least 11 aircraft available; that plans
were "well in hand" to bring the alrcraft into operatlon, and6 April. Mr. Amann sald that
that firm officers of the Department of Aviation.
phase-in
dates
would
be
given
after
meeting
with
At a meeting of the parties held on 9 April to discuss
progress, Mr. Rex Ramsey, Senior Executive Officer, Surveillance Resources, Department of Transport, said that the final date to
have the organisation up and running completely was 12 September
and if the applicant missed that date the contract would be "indoubt".
By letter dated 21 April, Mr. Amann provlded the
Department with "critical a path network programme". The
programme suggested that the applicant would take over the existing bases from skywest over a period ending in December. However, the letter stated that completion of all tasks would be prior to 12 September. Mr. Amann also stated that the dates in
the programme "may be adjusted due to delays beyond our or our
suppliers reasonable control."
Mr. Richardson sought clarification of what appeared to
be some confuslon in the programme. On 21 April, Mr. Amann
informed Mr. Richardson that operations would start as follows:
Darwin - 16 July; Gove - 17 July; Cairns - 18 July; Broome -
1 0 September; and Weipa - 12 September. Mr. Richardson said that
he would inform the Minister and Skywest.
8 9.
By letter dated 28 April, Mr. Richardson referred to the
meeting held on 6 April and confirmed that the respondent required "the 3 additlonal aircraft numbers for inclusion in the draft contract document to bring the total to 14 aircraft as per
your tendered offer." Richardson that he would provide the three
On 29 April, Mr. Amann informed Mr.
additional aircraft
numbers requested on his return from the U.S.A. Mr. Richardson's
note of the conversation continued:
"I indicated we would be writing for advice of
optimistic dates re transition - our particular concern being lateness of September dates in terms of contract milestone."
By letter dated 30 April, Mr. Amann informed the
Department of Avlation that the dellvery date of the first five aircraft was 1 July and gave the serial numbers of the "flrst eleven aircraft". He added:
"I am planning on the aircraft belng on the ground for
one week after arrival in Australia. Two weeks are
available before operations start on 12 July ..."
In the first week of May, Mr. Amann notified the Department of a change of aircraft type from 14 Rockwell 68OFLs
(piston engined aircraft) to 11 Rockwell 690s and three Rockwell
680Ws (both turboprop aircraft). By letter to the Department dated 7 May, the applicant confirmed that it was purchaslng 11 Aero Commander 690 series aircraft and three Aero Commander 680W aircraft.
By Commonwealth and Skywest agreed that their contract
an
agreement
in
writing
dated
19
May,
the
be extended
beyond 30 June. It was further agreed that Skywest would
progressively reduce its services in the manner specified in the
agreement; in specified closing date, upon glving Skywest not less than
addition,
the
Commonwealth
might,
prior
to
a
60
days' notice, require Skywest to reduce its services.
By McNamara, the Regional Director of the South Australia/Northern
letter
to
the
applicant
dated
20 May, Mr. R.
Territory Region clarification of the particulars of the aircraft being purchased. the f D partment of Aviation, sought By letter dated 21 May, the Commonwealth gave notice of its agreement to the change of aircraft types proposed provided
that the equipment was suitable and that no additional cost to the Commonwealth was claimed. Serial numbers were requested for
insertion in numbers were provided by the applicant by letter dated the formal contract documents. Fourteen serial 24 May.
The Commonwealth says that, with one exception, the serial
numbers were not referable to any aircraft acquired by the
applicant or by CVC Investments Pty. Ltd. ("CVC"), a company
associated with the applicant. The applicant accepts this but says (a) that the applicant was passing on information received
by it from the United States; (b) that the significance of thismatter should be assessed in the light of subsequent events, to
which it will be necessary to return later. By a purchase agreement dated 25 May between Northeast Air, Inc. of Portland, Maine, U.S.A. ("Northeast") and
the
applicant, lt was agreed that Northeast would sell and the applicant would purchase 11 Commander aircraft consisting of 680,
681 or 690 Series Turbo Commanders. Northeast agreed to deliver
the 11 aircraft for no more than U S S 2 , 4 4 8 , 0 0 0 . 0 0 but stated it
may exceed the "budgeted amount" with the prior approval of the
applicant. This agreement was superseded by a brokerage agreement entered into on 15 June between Northeast and CVC, to
be described later.Representatives of the Department of Aviatlon met with representatives of the applicant on 26 May. M r . Amann stated that the applicant had bought 14 aircraft - six 6905, three 680Ws and five 681s. In elaborating this statement, Mr. Amann said that the applicant hoped to acquire more 690s instead of the
three 680Ws on which holding deposits had been paid. The applicant expected the first batch of three aircraft to arrive in Darwin on 23 June, and the second batch of three aircraft to arrive there on 6 July. Procedures to obtain Certificates of Airworthiness from the Department of Aviation were discussed.
By letter dated 1 June, the applicant informed the
Department that "possible delays may be envisaged due to conflicting information given to us by the Department of Aviation
in relation to the non-destructive testing of the wing spar for the aircraft we propose using ... We will advise you of the expected time delays, if any, ..." By letter dated Department of Aviatlon for permlsslon to import 14 AeKO Commander
2 June, the applicant applied to the
aircraft (six 690s, five 681s and three 680Ws). The applicant
stated that, if possible, 690 or 681 aircraft would be purchased instead of the 680W models.
By letter dated 5 June, the Department responded to the
applicant's letter dated 1 June and asked "to be kept fully
informed of any delays immediately as they arlse and the
resultant impact hese delays might have on the proposed
timetable, (July to September), for handover of Coastal Surveillance Servlces."
On 9 June, letter of 20 May referring, inter alia, to the meeting held on
the
applicant
replied
to
Mr.
McNamara'S
26
May.
By a further letter dated 9 June, addressed to the
Minister for arrival date in Darwin for the first six aircraft was 10 July and
Aviation,
the
applicant
stated
that
the
planned
not 23 from the wing spar inspection procedures. However, the applicant
June as had been expected. The delay was said to arise
also stated that it "will still be in a position to take over all
Coastwatch operations by 12 September ..."
On 15 June, Northeast entered into a "brokerage
agreement" with CVC. Under the agreement, CVC agreed to purchase and Northeast agreed to arrange the purchase, on behalf of CVC,
of 11 Commander aircraft, conslsting of 680, 681 or 690 Series
Turbo Commanders for not more than US$2,448,000.00. Northeast agreed to use Its best endeavours to ensure delivery of the first
five aircraft by 30 July and the remainlng six alrcraft by 30 August. Pursuant to this agreement, CVC acquired a number of aircraft at about this time. CVC also acquired aircraft from other sources at other times.
By letter dated 19 June, Mr. Rlchardson sought the
applicant's confirmation that it would commence operations at Darwin, Gove and Cairns on 16, 17 and 18 July respectively. The letter stated that "the Commonwealth would consider any failure of your suppliers to meet thelr agreed deadlines with you, should
that occur, as a matter entirely within your control."
The applicant replied by letter dated 19 June stating
that "[tlo period from 16 July
ensure
Coastwatch
Operations
continue
during
the
... until [the applicant's] arrcraft are
on-line in Australia, [the applicant] is considering three
options. These are:
a. to lease Skywest's Coastwatch aircraft; b. to hire other aircraft for the task.. .
C. to request the Department ... to arrange for Skywest to continue operations until mid-August."
By Department that it would commence operations as follows:
letter dated
24
June, the applicant informed the
"Darwin: 16th July - in cross-hlred alrcraft Gove : 17th July - in cross-hlred alrcraft Cairns: 18th July - in cross-hired aircraft Broome: 10th September - in our own aircraft
Weipa: 12th September - in our own aircraft"
This interim operations proposal was relected by the Department by letter dated 30 June.
The applicant was also
informed that by 1 September it would be required to prove that it would be capable of performing the contract. This would involve flight trials in Australia witnessed by a Departmental officer. Further, the applicant was required to guarantee the supply of all fully fitted aircraft, including backup aircraft,
in sufficient time to commence performance not later than 12
September.
By letter dated 3 July, the Commonwealth gave notice to Skywest of its intention to vary the contract with Skywest by phasing out Skywest's operations progressively on the following extended dates: Darwin - 1 September; Gove - 4 September; Cairns - 7 September; Broome - 10 September; and Bamaga (Weipa)
- 12 September.
The Commonwealth informed the applicant of the
Skywest extension by letter dated 14 July. The applicant was
also informed that the Commonwealth required a minimum of 30 clear days' notice if any of the phase-in dates were to be further extended and that if the applicant was unable to achieve
these dates, action might be taken in accordance with cl. 2.23. (under cl. 2.23, if the contractor fails to make a flight in the
manner required under the contract and the Secretary of the Department is not satisfled that the fallure was due to accident or other reasonable cause beyond the control of the contractor, the contractor shall, without prejudice to any other remedy, pay the Commonwealth liquidated damages.)
By letter dated 15 July, the applicant accepted the provisions of the Department's letter
dated
14 July, agreed
to
performance testing and modified the "initial start up date" for
Broome to 12 September and for weipa to l0 September. The
applicant stated that "no default clauses should be implemented
before 12 September, as we are confident that default will not
occur. "
On 22 July, Mr. McNamara, of the Department of Aviation
wrote to the applicant informing it that, although approval was occasionally given by the Department for aircraft to operate in excess of the defined maximum take off weights in special circumstances, the applicant should not anticipate any such approval for the conduct of routine aerial work flights.
By letter dated 21 July, the Department of Transport and Communications (which from 24 July took over the functions of
both the Department of Transport and the Department of Aviation)
informed Skywest of the applicant's proposal to modify the
initial start up date to 12 September at Broome and to 10 September at Weipa with the consequence that Skywest's closure dates at Broome would be changed to 12 September and at Bamaga to
10 September. Skywest agreed to these changes by letter dated 28 July.
By applicant for details of its plans for alrcraft delivery from the
telex dated 29 July, the Department asked
the
U.S.A. to Darwin and for details of the programme for the
modification of the aircraft in this country. By telex dated 3 0 July, the applicant informed the Department that the first batch of three aircraft was expected to arrive in Darwin from the
U.S.A. on 6 August; the second batch of five aircraft was
expected to arrive in Darwin on 22 August; and the third batch of three aircraft was expected to depart the U.S.A. on 24 August. The applicant's plans were based on an average estimate of a seven day ferry fllght and of 14 days for modifications and certification.
By letter dated 5 August, the Department agreed to the
proposed modification of the initial start up date to 12 September at Broome and 10 September at Weipa, sublect to Skywest's agreement (Skywest's agreement was confirmed in writing on 12 August).
By letter dated 7 August, the applicant informed the Department of delays in the ferry of the first two aircraft
being
imported from the U.S.A. By letter dated 12 August, the applicant informed the Department that it was expected that the first two aircraft
would
arrive in this country before 14 August; the next four alrcraft would depart the U.S.A. on 13 August, followed by another group of four aircraft departing on 18 August; the last two aircraft
would depart on 21 August; so that the 12 alrcraft purchased in the U.S.A. were expected to be here by 21 August. By letter dated 12 August, the Department, referring to
its letter dated 30 June, stated that no further extensions of
time for the applicant's preparations would be permitted; if the applicant did not commence all its operations at all bases as the
contract required immediately proceed to terminate the contract;
by 12
September,
the
Commonwealth
would
in this respect,
notice was given that time was of the essence.
By letter dated 13 August, Skywest informed the
Department that it was willing to provide its services up to 12 September and "if necessary beyond that date."
By letter to the applicant dated 14 August, the
Department, referring to its letter dated 5 August, confirmed the initial start up dates as 12 September at Broome and 10 September at Weipa.
By letter dated 17 August, the applicant, referring to
the Department's letter dated 12 August, denied that he applicant was in breach of the contract and requested a meeting "to reach a common interpretation of the Coastwatch contract." By a further letter dated 18 August, the applicant also denied that the Commonwealth could make time of the essence.
Representatives of the parties met on 21 August. There
is a dispute as to what happened at the meeting. This will be
dealt with later. For immediate purposes, it is sufficient to note that by letter of that date, the Department set down the salient points of the discussion as follows: (a) the Department confirmed that its letter of 12 August was not intended to imply
that the applicant was in breach of the contract; (b) the parties confirmed that the date at which the applicant was contractually committed to be fully operational at all bases was
12 September; and (c) the Department "emphasised the critical national importance of the coastwatch services, the need to avoid
any discontinuity in surveillance operations and the essential requirement for full performance of the surveillance operations in accordance wlth the contract on and from 12 September ..." By letter dated 21 August, the applicant agreed wlth the Department's summary.
By a further letter dated 21 August, the Department accepted the offer made by Skywest in its letter dated 13 August to continue its services up to 12 September in the event that the applicant was not operational by the dates previously arranged (i.e. Darwin - 1 September; Gove - 4 September; Cairns - 7
September; Weipa - 10 September; Broome - 12 September).
By letter dated Department that it proposed to commence operations out of
20 August,
the applicant informed the
Darwin
on 1 September using an Aero Commander 690A aircraft; two other aircraft were undergoing inspections for Certificates of Airworthiness in Darwin and Cairns; another aircraft was remaining on the U.S.A. register for a short period and was being used for aircrew training in Darwin; another five aircraft were in transit from the U.S.A.; and the remainder were being prepared for ferrying to Australia.
At about this time, the applicant also sought from the Commonwealth concesslons in
respect
of the
regulatory
requirements governing the use of aircraft for the purposes of the contract in the first 90 days of its operations. Shortly thereafter, the Commonwealth granted some of the concessions but refused others.
By letter to the applicant dated 31 August, the Department stated that, since the applicant could not give an unequivocal undertaking that it would be able to commence operations from Darwin as scheduled on 1 September and as required by the contract, the Department had asked Skywest to provide surveillance from Darwln until 11 September. The letter reiterated the importance of continuity of the operation and the
need to avoid uncertainty in the provision of services. The
applicant responded to this letter by telex dated 31 August informing the Department that the applicant would be in a position to undertake the coastal surveillance flight from
Kununurra to Darwin on 1 September. By letter dated 31 August, the Department informed
Skywest that irequired
surveillance operations from Darwin from 1 September until 11
September inclusive.Skywest to undertake coastal By applicant again offered to fly the Darwin sector that day, lf the
letter to the Department dated 1 September, the
Department approved the commencement of operations. The Department replied by letter of that date requiring the applicant
to commence operations in accordance with the contract. The applicant was asked to state whether, inter alia, its aircraft
met the specifications in the contract.
By letter to the applicant dated 2 September, the
Department required the applicant to demonstrate to the
satisfaction of the Department that the full conditions of the
contract would be met: (a) in relation to each base on the date
scheduled prior to 12 September; (b) on 12 September; and that if the applicant had not established its ability to commence
operations from each base a clear 36 hours before the first
scheduled service, the Department intended to notify Skywest that
it would be required to provide a service from that base untiland including 11 September.
Also on 2 September, Mr. Secretary to the Department, telephoned
R.D.B.
Beale, Associate Mr. Amann and was
informed that it was expected that the two aircraft for operation from Gove would be registered by 4 September but that some of the modifications to those aircraft required by the contract would not be completed until 9 September. The Department confirmed this conversation by letter dated 3 September. The letter also informed the applicant that the Department had asked Skywest to undertake the coastal surveillance from Gove from 4 to 11 September.
By letter to the Department dated 3 September, the
appllcant stated that of the applzcant's lx alrcraft In Australia, one had recelved a Certlflcate of Airworthlness, and the others were undergoing inspections for that purpose; three aircraft were In transit from the U.S.A.; three aircraft were about to depart the U.S.A. and were expected to arrlve in Australia on 13, 17 and 27 September; two other aircraft had been procured locally and were expected to be In Darwin on 5 September; and the appllcant would be in a position to glve the
Department the required 36 hours' notice of its intention to start operations at all five bases on 12 September.
letter to the applicant dated 4 September, the Department confirmed that the applicant would not have registered aircraft available to provide services from Cairns on 7 September; and Skywest had been asked to undertake the services
By
until 11 September. A similar letter was written to the applicant on 8 September in respect of the services from Weipa from 10 September; Skywest had been asked to provide services
from Bamaga on 10 and 11 September.
By letter dated 9 September the applicant provided the
Department with a "checklist" indicating the state of readiness of its aircraft. By letter to the applicant dated 10 September, the Department referred to a meeting held that day between representatives of the parties and expressed concern with the state of preparation of the applicant's aircraft. The Department
confirmed the parties' agreement at that meeting that
Commonwealth officers would inspect the appllcant's alrcraft at each of the bases at 8.00 a.m. on 12 September. The lnspectlon was said to "cover both regulatory and contractual elements."
The Commonwealth would "make its decision on the future of the contract on 12 September."
By letter to the Department dated 11 September, the applicant stated that, from at least 21 August, the Department had been aware that the applicant would not be able to fully comply with the requirements of the contract by 12 September; but that the applicant would be "in a position to substantially comply with the terms of the contract and that such matters as were outstanding at that date would be complied with within a month of the start up date." The applicant stated that, as of the following day (12 September) they would have one aircraft at each of the bases and two standby aircraft.
By letter to Department joined issue with the applicant's
the applicant dated 11 September, the
contention in its
letter of that date that at the meeting held on 21 August it had been indicated that the applicant would not be able to comply
fully with the requirements of the contract.
The commencement of operations
As foreshadowed, inspection of the applicant's aircraft
was carried out by Commonwealth officers on the morning of 12 September. After the inspections, the aircraft flew some of the
sectors nominated by the Department pursuant to the contract.
Termlnation of the contractIn the afternoon of 12 September, Mr. Beale purported to termlnate the contract by the following letter to the applicant:
“RE: COASTAL SURVEILLANCE CONTRACT NO. 86/086/084 NOTICE OF TERMINATION
I glve you notice that I hereby terminate the
abovementioned contract, effective from the expiration of Saturday 12 September 1987, because your company has failed to comply with the requirement of the contract to commence performance of coastal surveillance services from all bases in accordance with the contract, on 12 September 1987.
Your company’s contract with the Commonwealth requires that it have 14 aircraft operating by 12 September 1987, being 6 months after acceptance on 12 March 1987 of the tendered offer of R. & P. Amann Aircraft Hire of 2 5 November 1986, and subsequent additional information. On 12 August 1987 I indicated to you that the Commonwealth considered that time was of the essence and that it would
terminate the contract if your company did not commence all its operations at all bases as the contract requires by 12 September 1987. Again, on 21
August 1987 I emphasised to the Chairman of your company the essential requirement for ull performance of the surveillance services in accordance with the contract on and from 12 September 1987.
As at today’s date I have ascertained from my officers that your company has no aircraft available for coastal surveillance services, fully equipped as
required by the contract and having Australian
registration. The availability of the aircraft at
the surveillance bases today, was as set out in the attachment to this Notice of Termination. Your company is seriously deficient in not having available the requisite number of aircraft equipped in conformance with the contract, and this deficiency is, in my view, so serious a breach of your company’s
obligations that I am not prepared to allow the
contract to continue.The Commonwealth reiterates that the Coastwatch service is of critical national importance and the public interest requires that such service must be
maintained by the aircraft and supporting services set out In the contract; which your company has patently not provided.
... “ATTACHMENT TO NOTICE OF TERMINATION OF 12 SEPTEMBER
1987 Gove 681: VH - NYD. Australian reglstration with
Certificate of Airworthlness; not fitted with bubble windows, drop hatch, adlustable seating and does not have the endurance required by the contract.
Weipa
Certificate of Airworthiness; not fitted with bubble 681: VH-NYA . Australian registration with windows, drop hatch, adjustable seating and does not
have the endurance required by the contract.680: VH - EXP. Australian registratlon with Certificate of Airworthiness, not fitted with bubble windows, drop hatch, adjustable seating or airconditionlng. Addltionally not fitted with the following avionics: weather radar, VLF Omega
navigation system or radio altimeter, required by the contract. Darwin 690: VH - NYB. Australian registratlon with Certificate of Airworthiness; not fitted with bubble windows, drop hatch, adjustable seating and does not have the endurance required by the contract.
681: VH - NYH. Australian registration but no Certificate of Airworthiness. Undergoing maintenance.
680: VH - EXZ. Australian registration with
Certificate of Airworthiness; not fitted with bubble windows, drop hatch, adjustable seating or airconditioning. Additionally not fitted with the following avionics weather radar, VLF Omega navigation system and radio altimeter, required by the contract.
Cairns 681: VH - NYE. Australian registration with Certificate of Airworthiness; not fitted with bubble
windows, drop hatch, adjustable seating and does not have the endurance required by the contract.
681: VH - NYG. Australian registration but no
Certifrcate of Airworthiness. Undergoing maintenance. 8 25.
BKOOme
681: VH - NYF. Australlan registratlon wlth Certificate of Airworthlness; not fitted wlth bubble windows, drop hatch, adjustable seatlng and does not have the endurance requlred by the contract."
The applicant contested the Commonwealth's entltlement
to terminate the agreement. By letter dated 15 September the
applicant, claiming that, in giving the notlce of terminatlon,
the Commonwealth ad repudiated its obllgations under the contract, purported to accept that repudiation and to rescind the
agreement and claimed damages.
The issues arising on the pleadings
The allegations made by the applicant In its Revised New
summar sed be Claim f llows: Points m y of a
(1) On or about 12 March 1987, the parties entered into a contract.
(2) After the ntry into the agreement, but before the applicant embarked upon its performance on 12 September
1987, the representations to the applicant: (a) that the applicant
Commonwealth
made
the
following,
inter
alia,
was required to have available on any day only so many operating aircraft as were required to perform scheduled
flights on that day, together with certaln backup aircraft,up to a total of eight operating aircraft, three backup
aircraft and three additional aircraft which were not
required to be operational; (b) that it was not necessary for each of such aircraft to be fitted with bubble windows,
drop hatches or long range fuel tanks by 12 September 1987and that a period of at least one month after that date was
permitted for their installation; (c) that only 5 flights would be scheduled on 12 September 1987; (d) that in the
event that contractual
the
applicant
did
not
perform
all
Its
obligations September 12 by 1987, the
Commonwealth would not purport to terminate the agreement
but would
apply alternatively, the Commonwealth would issue
the
provisions
of
cl.
2.23
OK,
a notice to
"show cause" pursuant to cl. 2.24 which would give the
applicant sufficient tlme to comply; (e) that the two of
the aircraft would be accepted notwlthstandlng their absence of certain avlonlcs.
Relylng upon these representations, the applicant took a number of steps In preparation for, and in performance of,
the contract.On 10 September 1987, the appllcant gave the Commonwealth a
detailed report of the situatlon of its aircraft; on 12 September 1987, the Commonwealth inspected the alrcraft;
the Commonwealth then became aware of certaln deflcienciesin terms of the numbers of aircraft required by the
agreement and In terms of equipment that was then not fitted in accordance with the contract.
On 12 September 1987, with knowledge of these deficlencies,
the Commonwealth instructed the applicant to commence
flyrng operations and the applicant dld so. The Commonwealth thus waived any right to terminate the
contract because of any of these deficiencies and afflrmed
the contract.Alternatively, the Commonwealth is estopped from relylng upon these deficiencies as constituting a breach of the agreement.
The acts done by the applicant pursuant to the contract constituted substantial performance of its obligations.
The Commonwealth failed to give a "show cause" notice as
was required by the agreement before the Commonwealth couldterminate the agreement.
If a proper "show cause" notice had been given, the applicant would have complied with it.
On 12 September 1987, the Commonwealth purported to terminate the contract; the Commonwealth was not entitled
to do so and thus repudiated the agreement.
It was a term of the agreement that the parties would do
all acts necessary to bring about its performance. In
breach of this term: (a) the Commonwealth refused permission to the applicant to operate certaln aircraft in Australia for a short period while certain of its aircraft retained their Unlted States registration; consequently the
applicant's preparations to perform the contract were
delayed; (b) on 12 September 1987, the Commonwealth
scheduled inspections and tests of the applicant's aircraft and personnel, thereby delaying certain flights; (c) the
Commonwealth delayed preparation of the formal contract
which occasioned delay in the applicant's arrangements for finance.
As a consequence of the Commonwealth's conduct, the
applicant was prevented from implementing the contract. By letter dated 15 September 1987, the applicant accepted the Commonwealth's repudiation.
The Commonwealth owed the applicant a duty of care to ensure that information given to the applicant, with respect to the requirements of the agreement, was accurate.
In breach of this duty, the Commonwealth gave the following erroneous information (a) as to the number of operating
aircraft required; (b) as to the need to have bubble
windows, drop hatches and long range tanks installed by 12 September 1987; (c) as to the endurance of the long range tanks in terms of their compliance with the requirements of the agreement.
The Commonwealth supplied erroneous information with
respect to wing spars, thereby causing delay and expense.The Commonwealth erroneously informed the applicant that the terms of the contract requlred the applicant to commence operations not later than 12 September 1987 whereas it was not obliged to commence until 13 September.
The Commonwealth made, inter alia, the following representations to the applicant which the Commonwealth is
now estopped from denying: (a) that the applicant was
required to have only eight operating and three backup aircraft together with three additional aircraft which were
not required to be operational; (b) that the bubble windows, drop hatches and long range fuel tanks were not required until one month after 12 September; (c) only five flights would be scheduled on 12 September; (d) in the event that the applicant did not perform all its obligations under the contract by 12 September, liquidated damages under cl. 2.23 or a notice to show cause would be given under cl. 2.24.
In giving the Notice of Termination, the Commonwealth acted "wrongfully, arbitrarily, capriciously and unreasonably".
The contentions made by the Commonwealth in its Defence
can be summarised thus:
(1) The making of a contract is admitted. ( 2 ) The commencement date for flying operations was 12
September 1987.
(3)
The applicant was to take over from Skywest on a sector by sector basis as soon as possible after acceptance of the applicant's tender and the expiry of Skywest's contract on 31 March 1987.
The date of commencement of operations in each sector would
be fixed by agreement and in any case would take place in
all sectors by no later than 12 September.The applicant is estopped from asserting that the date of commencement of operations was 13 September.
On or about 27 April 1987, it was agreed that the applicant would commence operations from Darwin on 16 July 1987, from
Gove on 17 July, from Cairns on 18 July, from Broome on 10
September and from Weipa on 12 September, and time was agreed to be of the essence.
On 14 or 15 July 1987, those dates were extended as
follows: from Darwin on 1 September, from Gove on 4
September, from Cairns on 7 September, from Weipa on 10
September and from Broome on 12 September, subject to a
minimum of 30 clear days notice if any of these dates were to be extended; otherwise time was of the essence. The applicant failed to commence operations as required and this requirement was of the essence.
Alternatively, on 12 August 1987, the Commonwealth made the
commencement of operations by the applicant from all
sectors by 12 September 1987 of the essence of the contract. (10) The applicant failed to commence and carry out operations
on 12 September and thereby became in breach of the contract. (11)
On and before 12 September, the applicant failed to take
contract so that the Commonwealth was entitled to, and did,
terminate the contract.
the steps necessary to equip itself to carry out the The applicant induced the Commonwealth to enter into the
contract by fraudulently, deceptively or negligently
representing to the Commonwealth in November and December
1986 and in January 1987 that the applicant had options
over certain aircraft. (This defence was abandoned during addresses.) By its Reply, the applicant puts the following:
At the time of its purported termination of the contract, the Commonwealth was unwilling and unready to perform its obligations.
The Commonwealth waived any requirement that the applicant commence performance on the dates mentioned in the Defence.
The applicant denies that time was of the essence.
The Commonwealth is estopped from replying upon the matters said to justify termination of the agreement.
e 29.
(5) For the Commonwealth to insist upon strict and literal
compliance with the provisions of the contract would be
unconscionable.
The grounds for termination stated In the notice dated 12
September
The Commonwealth's case is that determine the contract because the appllcant had committed a
it was entitled to
"serious" breach of their agreement by failing to provide 14 fully equipped aircraft with Australian registration operating
from all bases commencing on 12 September. In its Defence, as
has been noted, the Commonwealth says that 12 September wasthe agreed date of commencement; alternatively, time was made
of the essence in this respect. Then the Commonwealth alleges that on or before 12 September the applicant failed to take all such steps as were necessary to prepare itself
for the
contract, including the provlsion of 16 aircraft. The documentation of the contract
There constitutes the agreement between the parties. There is also
is
adispute
as
to
the
m
lateri a1
which
controversy a as to the terms of the contract: the Commonwealth says that certain information supplied by the
applicant was intended to be promissory and a term, or perhaps even a condition, of their agreement; the applicant, on the
other hand, says that this material was merely by way of a
proposal and was not intended to be promissory. The contract documents consist of the "Condltlons of Tender" (Section l), the "Conditions of Contract" (Section
2 ) ,
a "Specification for Charter Aircraft Task" (Section 3),
certain "Schedules" (Section 4 ) , a "Form of Tender", the
applicant's letter dated letter of acceptance dated 12 March, together with certain
25 November, and the Commonwealth's
material mentioned in the applicant's letters mentioned In that letter of acceptance. In order to understand the respective contentions of
the parties, it is necessary to refer to the details of the relevant parts of the contract documents.
The "Conditions of Tender" (Section 1)
The described in the specification
tender
was
to
be
for
the
whole
of but the tenderer could offer
the
task
for any or all of the operating bases (cl. 1.2). The tenderer was deemed to have (a) examined the tender document and any
other relevant information made available in writing by the
Department; (b) risks, contingencies and other circumstances having an effect
examined
all
information
relevant
to
the
on his tender and which was obtainable reasonable enquiries; and (c) satisfied himself as to the
by
the making of
correctness and sufficiency of his tender (cl. 1.4).
The tenderer had to complete the "Schedules at
Section 4" "Statement of Compliance"
and to provide certain "information", including
a
in respect of every clause of the
speclflcation. Where the tendered equlpment dld not comply wlth the speclflcatlon, details had to be glven; any such fallure could be taken into account In assessing the relative merits of tenders (cl. 1.7.1). Tenderers were to demonstrate,
by flight trials If necessary, under condltlons and configurations specified by the Department, that the nominated
aircraft could meet all the specificatlons called for and could provide an adequate working environment for aerlal
surveillance operations to the satisfaction of the Secretary (cl. 1.7.2). Tenderers were to have drscussed with the Department of Aviation the special clearances necessary to meet the requirements of Air Navigation Orders for the task
(cl. 1.7.3).
The tenderer was to complete a "Schedule of capacity for flying hours available from each base" stating
the
minimum and maximum hours required. The schedule was to be
"based on" a "typical flight program" shown in Annexure 1 (cl.
1.7.5).
Annexure 1, as amended by letter from the Department dated 21 October 1986, is as follows:
- , h c
1 - ' P l -
€ .. ci c. ,-
- 1 .. 5 P
I ' I
- :. :,
1
5
I
I
z l . rl
I . I i I I ! l U') 0 :. o * m . .
6
I 0 I 0 I . l t
L
m 01
N
m 0 a L
I Y I 0 I. .I
I & (It will be noticed that this contemplated the use of a
total of eight aircraft - two at Broome, Darwin and Weipa (or
Horn Island or Bamaga) and one at Gove and Cairns.)
The hours shown in Annexure 1 were "not guaranteed to be
flown" in any one week or provided by tenderers in the schedule were to be subject to
over a period
of time"; and figures
checking and agreement by the Department prior to acceptance of any tender (cl. 1.7.5). The tenderer was to supply a list detailing the location of all his Australian-based aircraft capable of complementing the tendered service. The tenderer was to be prepared to supply, if requested, details of his resources and capacity ', both flnancial
and physical, to set up and perform the service (cl. 1.7.6).
The Department
additional information to allow further consideration of his
tender (cl. 1.9).could require the tenderer to submit
If the Department decided to accept the tender, notice
of acceptance was to be served on the successful tenderer, who could be required to enter into a formal contract, but written notice of acceptance of a tender would constitute a binding contract, whether such formal contract was or was not executed
(cl. 1.10).
The tenders were to remaln valld for a perlod of 90 days
(cl. 1.14).
The "Conditions of Contract" (Sectlon 2 )
The
with the perlod of the contract, llquidated damages, default and
termination should be noticed.provlsions contained in these conditions deallng
The period of the contract was defined
operation specified in the Notice of Acceptance". The Contractor
was to take over the sectors he was contracted for from the
existing contractor on a sector by sector basis "as soon as
possible after receipt of the Notice of Acceptance and expiry of
the existing contract". The expiry date of the Contract was toby providing that it would be "in force for the number of months of aircraft be confirmed after the last aircraft was in operation and was to
be such date as would permit an average number of months
operation of specified in the Notice of Acceptance (cl. 2.4).
each
aircraft
equalling
the
number
of
months
The contractor
was to
lodge value...as security
"2%
of
the
stimated
total
annual
contract
for the due and proper performance and
completion of the contract" (cl. 2.5.1). This security was to be refunded "after the Secretary has certified that the Contract has
been satisfactorily completed ..." (cl. 2.5.5). Provision for liquidated damages was made as follows:
"If the Contractor proceeds with a flight with any of
the following items equipment of misslng or unserviceable:
(a) specified radio equipment ... (b) specifled tactical navigation system ... (c) specified radar equlpment ... (d) fully operational air condltlonlng system ... (e) specified intercom equipment ... (f) specified cameral equipment ... (g) specified binoculars... (h) radar altimeter... (i) any windows which, through opacity, do not allow clear external vision...
the Contractor shall be required to pay to the Commonwealth, as liquidated damages and not as a penalty, an amount equal to the percentages of the daily standing charge for that aircraft, as shown above, for each item of missing or unserviceable
equipment. " ( cl. 2 . 2 2 ) Default was dealt with in these terms:
"If the Contractor fails to make a flight in the manner required under the Contract and the Secretary is not satisfied that the failure was due to accident or other reasonable cause beyond the control of the Contractor the Contractor shall without pre~udice to
any other emedy pay the Commonwealth, or the
Commonwealth may, at its option, deduct from any amount due or to become due to the Contractor any sum payable by the Contractor as liquidated damages or
the amount that would have been paid had the Contractor not been in default and any extra expense over the contract rate incurred by the Department in
having the Contractor's default made good." (cl. 2.23)
Termination was provided for as follows:
"whenever and so often as the Contractor fails to carry out the Contract or comply with a condition of the Contract to the satisfaction of the Secretary then in either of these events the Secretary may, by notice in writing, require the Contractor to show cause in writing to the satisfaction of the Secretary, why the Contract or any specifled portion thereof should not be cancelled. If the Contractor fails to show cause in writing, as so required, the Secretary shall be entitled to treat the Contract or any specified portion thereof as having been
cancelled.. .'I (cl. 2 . 2 4 ) It was further provided that none of the conditions of
the contract were to be varied, waived, dlscharged, or released
either at law or in equity except by the express consent of the Secretary (cl. 2 . 2 7 ) . The "Speciflcation for Charter Aircraft Task" (Section 3)
The scope of the task was defined in this way:
"3.1.1 (a) The task required of the charter aircraft is (1) Visual search of the Littoral Area in sectors nominated by the Department. The Littoral Area is a band from approximately one mile inland to three miles offshore from the mainland Australian coastline and around nominated offshore islands from approximately Karratha to Cairns
( 2 ) Visual search of the Ashmore and ad~acent Islands
(3) Visual search of other areas as required.
(b) The visual search will normally be carried out between the times of one hour after the beginning of daylight and one hour before the end of daylight as defined by Department of Aviation.
3.1.2 The Contractor will operate his aircraft for the
sectors he is contracted for from the following
airfields:-
- Broome - Darwin - Gove
- Horn Island or Bamaga or Weipa - Cairns to provide the indicative coverage at Annexure l..." "3.1.3
Other staging bases regularly used are Karratha, Port Hedland, Kununurra, Mitchell Plateau, Maningrida,
Milingimbi, Boroloola, Normanton, Weipa and Lockhart River. 3.1.4 Annexure 1 shows a typical flight program for the
task. The Annexure is for guidance only and the
hours shown are not guaranteed to be flown in any one
week or over a period of time."(Annexure 1 has already been set out)
Sub~ect to the following conditions, the minimum and maximum hours capacity of each base shall be as submitted with the Contractor's Tender (Schedule 3) and agreed to by the Department:
the agreed maximum and minimum hours shall be subject to reasonable adjustment for statutory and logistical limitations on provision of personnel.
if any change of a long term nature is made to the
frequency of operations which affects hours flown to
a level outside the minimum/maximum range agreed, the
Department or the Contractor may request adjustment
of the Daily Standing Charges to reflect any change
in the required numbers of pilots and observers.short term variation from the level of operations indicated at Annexure 1 may involve additional expense to make personnel available if sufficient notice is not given for rostering. Any reasonable additional expense thus incurred will be reimbursed at cost by the Department.
the standard operating crew for the contract task shall be one (1) pilot and two ( 2 ) observers. The Contractor shall provide sufficient aircraft as specified, aircrew, related administration and resources at each operating base that 1s contracted for to meet the following requirements:
fly any number of hours within the limits shown in the agreed Schedule 3 submitted with the Contractors
Tende r ; fly no observer for more than five ( 5 ) hours on the visual surveillance task per day. Ferry or transit time is not included in this limitation. It would be
expected that no observer would fly for more than seven ( 7 ) consecutive days;
operate at times to be nominated by the Department;
have the flexibility to operate on a variety of search tracks and vary the programmed tracks at short notice to meet operational requirements as notified by the Department; and
have the flexibility to operate, at short notice, from any suitable operating base for a period of up to one month. The details and costs of such operations to be negotiated as the situation arises."
As has been noted, the surveillance portlon of the task
was to be flown at not less than 140 knots IAS nor more than 160 knots IAS except when identifying sightlngs whereupon the speed
was to be varied as required. Normal operatlng altltudes were to
be between 500 to 2,500 feet except when identlfylng sightlngs
(cl. 3.1.8).The aircraft were only to be used for the tasks as specified in the contract unless directed by the Department (cl. 3.1.9).
As we have seen, the littoral search was stated to be
primarily concerned with the detection, for quarantine purposes, of unauthorised landings; at the same time, reporting
requirements were said to be "not exclusive to prime tasks" and surveillance crews were said to need to have "a broad understanding of all information requirements and...be able to
report sightings accurately and rapidly record elevant
information about sightlngs" (cl. 3.2.3). Aircraft requirements were provided for as follows:
"3.3.1 The aircraft is to be a suitable multi engined
aircraft with the following equipment and capabilities:
...
(b)
endurance of 5 hours on task at an operating level of 500 feet AGL within the 140-160 knot range IAS plus transit of one hour at normal cruise plus IFR reserves applicable to the entire flight carrying 5 people including the pilot;
... (f) commercial lntercommunlcations system between all seating positlons In the aircraft..
(g) weather radar wlth ground mapping mode that can detect a 20 metre vessel at
20 nautical mlles in
sea state 3 ;
VLF/OMEGA or Inertial Tactical Navigation System. . .
2 visual observation stations in the rear cabin which Incorporate comfortable, fully adlustable seating and optically clear bubble windows large
enough to allow an observer to place head and [shoulder] in the bubble with an unrestricted view of the surface beneath the aircraft covering a semi-circle of 5 nautical mile radius with the base line along the flight path of the
aircraft. Stations to be located on either side of the fuselage and to allow undistorted photography clear of engine efflux to be taken through the bubble or an appropriate opening hatch; I F R approved low level radar/radio altimeters;
ability to carry and drop small stores packages up to the size of 24cms X 24cms X 70cms and messages while airborne;
air-conditioning system to maintain the cabin to a maximum temperature of 27 degrees Celsius and 60% humidity on a 32 degree Celsius 70% humidity
day. . . "
Aircraft availability was dealt with in these terms:
"3.11.1 The Contractor shall provide sufficient
aircraft to undertake the task making
necessary allowance for scheduled maintenance.
3.11.2 The Contractor shall provide aminimum number of backup aircraft relative to the
number of contracted operating aircraft asfollows:
(a) one, two or three operating aircraft - one backup aircraft (b)
four, five or six operating aircraft - two backup aircraft
(c)
seven backup aircraft."
or
eight
operating
aircraft
- three
"Suitability of equipment" was dealt with as follows:
"3.15 At any time the Department may require the
Contractor to demonstrate, by flight rials if
necessary, under conditions and configuratlons specified by the Department, that the contracted
aircraft can meet all the requirements of the
specification a d
environment for aerial surveillance operations to the
satisfaction of the Secretary."provide andequate worklng
The Schedules (Section 4)
Section 4 of the contract documents comprised four
schedules in which tenderers were to state further details of their tender on the subjects of "Rates" (Schedule l), "Component
Costs" (Schedule 21, "Capacity for Flylng Hours" (Schedule 3 ) and "Technical Data" (Schedule 4). Mr. Amann completed Schedule 1 as follows (his response is emphasised):
"4.1 - SCHEDULE 1 - SCHEDULE OF RATES
Rate For . Rate FOK
Five Year . Three Year
11=11==--1 . =11=11=*=1 Contract $ . Contract $
4.1.1 Standing charges
per day for each base 1,774.02 . 2005.55 (based on 7 days)
4.1.2 Flying charge per
hour for each aircraft 191.06 . 191.06 4.1.3 Rate to cover cost of overnighting away from specified operating airfield per person per
night 130.00 . 130.00 4.1.4
Base(s) tendered for BROOME - DARWIN
GOVE - WEIPA
CAIRNS
NOTE - If dlfferlng prices apply for bases a separate
schedule should be submitted for each base."
In Schedule 2, Mr. Amann gave details of his component
costs. In his response (emphaslsed) to Schedule 3, as amended by letter from the appllcant to the Department dated 12 January
1987, Mr. Amann said:
"4.3 SCHEDULE 3 - SCHEDULE OF CAPACITY FOR FLYING HOURS
AVAILABLE FROM EACH BASE (Refer clause 1.7.5)
Base Required Minimum Maximum Dlfference
- Hours HOU r S Hours between
Max & Req'd
Broome 3148 - 1574 - 3600 452
Darwin 2102 - 598 2700 1401 -
Gove 1216 584 - 1216 1800 -
(Bamaga 3266 - 1633 3600 334 Sector) - Weipa
Cairns 1287 - 513 1287 800 - ...
In Schedule 4 (Technical Data), details of the aircraft proposed:
Mr. Amann gave these
"4.4.1 Details of Aircraft Proposed
Is equipment specified at clause 3.3 of
Specification for Charter Aircraft Task
fitted. If
specified please attach statement detalling
deficiencies and time required to fit such
equipment.aircraft is not equipped as
Manufacturer Gulfstream American
Rockw ll Comander Type [sic]
Model 680 F & FL Registration No VH T.B.A. [i.e., to be advised] Seating Capacity
(including pilot) 8 - 10...
4 . 4 . 3 of details State anticipated arrangement/utrllsatlon on this contract of Aircraft provlding for normal routine overhaul/servlcing.
In house servicing after days flying
completed & backup aircraft as required ...
...
4 . 4 . 5 State d tails
of available to the Tenderer that may be
any other aircraft
used
to supplement those nominated above.
Beechcraft Queen Air B-6 5
Duke 8-80''
Nr. Amann dealt with the sultability of his equipment in
this way:
" 4 . 4 . 6 Equipment Suitability
Outline method to be adopted to prove aircraft offered above meet specifications.
Submission of technical data i.e. Flight manual and if required
test flight with Department"
He provided details of the commencement of operatlons as
follows:
"4.4.11 Commencement of Flying Operation under the Contract
( a ) State time needed from date of letter
of acceptance to recruit sufficient pilots and observers and supply personal details of
all staff associated wlth flying operations.Two months required (b) State time needed to make aircraft available for commencement of air patrol
from date of letter of acceptance: 6 months totaled (sic) (but 1s negotiable)
and aircraft availability will b e progresslve.
...
8 4 3
The "Form of Tender"
The "Form of Tender", slgned R. & P. Amann Aircraft Hire and dated
by Mr. Amanm on behalf of
25 November 1986, was as
follows:
"Under
and state on the following pages, we R
subject theundersigned do hereby tender and offer to supply
to
the
Conditions
of
Tendering
& P A W N AIRCRAFT
HIRE.. .
the Commonwealth of Australia with the services tendered for in the Schedules attached hereto, at the
prices tendered, and under and subject the o
Conditions of the attached Tender Schedule DOT 086 for CHARTER OF AIRCRAFT FOR COASTAL SURVEILLANCE SERVICES-LITTORAL AREA..."
The correspondence referred to in the letter of acceptance
By his covering letter dated the tender, Mr. Amann said that:
25 November 1986 submitting
...
2. We the equipment offered by
propose
to
demonstrate
the
suitabillty
of
way of a test flight
prove to c mpliance with tender th documentations intent.
3. We have had numerous meetings with e Department of Transport offices [sic] as to the requirements of the proposed task and confirm
that we will be able to comply fully.
...
At this time, the intent is to import the aircraft
from the U.S.A. and then place them on the Australian
register. Suitable aircraft have been sourced and
options placed for a period of ninety (90) days. ... As has been seen, cl. 1.7.6(b) of the "Conditions of
Tender" required the tenderer, i f requested, to supply details of his resources and capacity to perform. On 8 December 1986, Mr. Richardson wrote to Mr. Amann seeking further details. By his
letter dated 11 December 1986 (bearing the wrong date of 11
November), Mr. Amann responded:
"CLAUSE 1.7.6(b)
1. Aircraft for the task will be procured in the United States of America.
2. The following modification will be required and performed in the U.S.A. prior to delivery:
a)
Fitment of bubble windows for observation stations.
b) Complete strip and repaint to specification
aircraft livery (Clause 3.16).
c) Fitment of Radar Altimeter.
d) Removal of existing Radar and reinstallation
of common Radar unit (Bendix 230HP). (Note, applies to 3 aircraft only).
In addition, the following modifications will be performed in Australia:
Installation of Marine Band VHF/FM Radio. Installation of UHF/AM Military Band Radio. Aircraft intercommunications system.
a piston
engined aircraft would represent about 33 per cent of the flying
charge, the turpoprop's fuel cost per hour would represent more than 66 per cent of the flying Charge. Moreover, as has been said, there may be different maintenance costs and this may also
have a costs would be and upon the respective proportions that each of
bearing upon an assessment of what the total component
those costs would bear to the whole.
It follows, in my view, that in order to lay down a
formula for adjustment of the flying charge by reference to
changes in "cost components" in the case of the turboprops, it was necessary for the parties to revise their existing formula in a number of substantlve respects. No doubt the prlce of Avtur at the relevant date was a factor to be taken into account. But it could not have been the only factor. Once it was accepted, as the parties did accept, that the introductlon of the turboprop was not to involve any additional cost to the Commonwealth, the terms of reference for the worklng of the rise and fall provision had to be reformulated. It was no longer posslble to accept that fuel cost represented only one-third of the flying charge. A number of fresh calculatlons were required in order to prescrlbe
a formula which would provide for rise and fall in the "cost component" of the new aircraft, but always on the footing that the result would not cost the Commonwealth any more than the cost would have been if the whole fleet had consisted of turboprops, assuming always, of course, that it were possible to prescribe such a formula.
In my opinion, these details were essential to the
making of any agreement providing for rise and fall in thls area. In the absence of agreement on these crucial matters, there was
no operative rise and fall provision in place in the case of the turboprops. The existing provlsion would apply to he piston engined aircraft but this is a different matter. In my opinion, the provisions of cl. 2.7 as a whole,
including cl. 2 . 7 . 9 , applied to each "Cost Component" as defined in the contract and as stated in the Notice of Acceptance. In
other words, the rise and fall provision did not apply to any other costs or expenditure incurred by the appllcant.
In the result, in my view, the contract did not require
any alteration to the amount payable to the applicant by
reference to any change in the price of Avtur after 1 July 1988.
It follows that no alteration should be made to the figure of
$17,107,462 (being the income agreed to be receivable under the contract) by reason of the removal of the excise on Avtur.
what would have been the applicant's fuel costs?
There remains the different question of the estimated
expenditure which would have been incurred by the applicant in acquiring fuel over the period of the contract. Apart from the rise and fall question discussed above, the parties are agreed
that the sum of $2,825,420.00 should be allowed on this account.
APPENDIX 5
"Interest" or other cost of serviclng the borrowing necessary
to fund the acquisition of the aircraft
As expenditure, the applicant incurred a
has been stated, as part of its pre-operational
liability to CVC in the sum
of $202,311.00 for "interest". This liability arose out of an
arrangement between those parties which was recorded in a mlnute ofa meeting of the directors of CVC on 12 April as follows:
"CVC INVESTMENTS It was agreed that CVC Investments Pty
TRUST & AMANN Limited would act as Trustee of moneys AVIATION PTY provided by Wenola Pty Limited and, if LIMITED:
necessary, from Southsea Investments Pty Limited which companies were providing the loan funds to enable the purchase of aircraft rn the name of CVC Investments
Pty Llmlted. These aircraft would be
hired to Amann Aviation so that an interest rate of 20% was derived by the
Trust as bridglng finance until the
Commonwealth Bank took over the debt on
the safe arrival of the alrcraft in
Australia and the finance contract with
the Commonwealth being available.IT WAS NOTED that the Trust would also act for Continental Venture Capital Limited in relation to the one aircraft purchased by Melbourne Australia Investments Limited until all finance issues between the parties were finalised."
The background to Commonwealth Bank finance, is that Mr.
the reference, in the minute, to
Shlegeris had sought from
the Bank "lease finance" for the acquisition of aircraft. On 10
April, the Bank had written to Continental Venture Capital Ltd., a
company associated with CVC, confirming approval of "progressivelease financing of $3.5m to [the applicant] to assist acquire
sixteen aircraft..." Conditions of approval included the "provision of freehold/cash security to the value of $l.Om" and a "guarantee limited to $500,000 from Continental Venture Capital." Continental Venture Capltal was also to undertake to "inlect up-front non-interest equity capital of $650,000 in [the appllcantl;" to "financlally support [the applicant] if necessary to ensure lease rentals...are met on thelr respective due dates;"
and "to provide an additlonal guarantee of $250,000 ... lf [the
applicant] fails to achleve the cash flow pro]ections." The lease proposed was for 41 months with a residual value of $1,500,000.00
Interest was stated to be at the rate of 17.33 per cent. It appears that some of the conditions of this proposal were not acceptable to the applicant. In the result, the leaslng transaction was not proceeded with. The applicant claims that, at this tune and later, it experienced difficulties in obtaining lease or other finance because of comments by Skywest reported in the
media suggesting that the applicant's inexperience in the area indicated that the applicant would not be able to perform the
coastwatch service adequately. I accept that some publlcity to
this effect occurred. The evidence does not indicate what effect
the publicity had on financing generally. We do not know, for
instance, what impact, if any, the publicity had upon the
Commonwealth Bank. But, in any event, it was decided not to take up the Bank's proposal. Instead, CVC chose to finance the purchase and modification of the aircraft by bank bills. These bank bills, which provided temporary accommodation only, and thus needed to be
rolled over periodically, were discounted at rates of between 11.5and 14 per cent per annum.
Accounts of the applicant and the CVC Investment Trust
drawn up as at 19 September, reflected their dealings as follows: "AMAtW AVIATION PTY. LIMITED
Notes I
AUthoKlSed Cap i t a l 2
Excess of Assets over L i a b i l i t i e s
The accompanying notes form P a r t of these accounts. Amann Aviatim Pty. Limited unconditionally has guaranteed CVC
Investments Pty. Ltd. a g a i n s t a l l costs of its opera t ion and any
loss r e s u l t i n g from the provid ing
of planes and equipment to Amann
Aviaticn Pty. Limited. "
T r u s t C a p i t a l S e t t l e d Sum Total T r u s t C a p i t a l Represented by:
Flxed Assets
Planes h Equipment
C u r r e n t Assets
Cash on Hand
S .oo
The Aocompanying Notes form p a r t of these Accounts "
On behalf of the applicant, it 1s argued that, for the purpose of estimatlng the cost to the
applicant of performing the
contract, it should be inferred that the applicant could have obtained finance (to buy the aircraft from Cvc) at a cost of approximately 14 per cent per annum. It 1 s sald that the flnance
could have been found in the form of 90 or 180 day bank bllls
discounted at about 14 per cent per annum.
There are difficulties in accepting thls. The appllcant had only limited assets and significant liabllities. Its
capacity to borrow an amount in excess of flve million dollars must have depended upon its association with CVC, which held half
of its share capital. If CVC were prepared to secure and to guarantee the applicant's liability under the transaction, it 1s
possible that this finance could have been obtained.
But this is not any such arrangement would be less than
to say that the interest payable under
2 0 per cent, being the
amount charged by CVC in its transaction with the applicant. On the contrary, the evidence indicates that lease finance would have cost approximately as much, and possibly more, than CVC was
Bank's rate of interest exceeded 17 per cent per annum. In charging. In its offer made in April 1987, the Commonwealth
addition, the lessee would have a contingent liability, admittedly difficult to estimate, m respect of the residual
value of the aircraft. There was evldence that the Bank's rate
of interest charged on a lease arrangement would be 16.75 per
cent per annum. Again, it would be necessary to allow for the
residual liability. There was no suggestion that the interest rates quoted by the Bank exceeded the market rates. It seems unlikely, therefore, that the applicant could have obtalned lease
finance at an overall cost (including an allowance for residual liability) less than the 20 per cent per annum "interest" belng
charged by CVC.
On behalf of the applicant, it is submitted that,
because the cost of leasing finance would have exceeded what it cost CVC to finance the purchase of the aircraft by using bank bills at a discounted rate of about 14 per cent per annum, it should be assumed that the applicant would also have used bill
finance at about 14 per cent per annum to fund the establishment
of its operation.
It is difficult to make this assumption. For one thing,
CVC was in a much stronger financial position than the applicant. It appears that, as at 12 September, the applicant had lost most, if not all, of its share capital. As at 19 September, the balance sheet of the applicant indicated that it was,
technically, insolvent. Its only substantial asset was the
coastwatch contract and the profit margin under that contract was relatively small. From the minute of the meeting held on 12 April quoted above, it appears that there was an understanding between the applicant and CVC that the applicant would take over the aircraft from CVC once the Commonwealth Bank finance had been
arranged. From the note at the foot of the applicant's balance sheet as at 19 September (see above), it seems that the applicant had also agreed to indemnify CVC against any loss In connectlon with the coastwatch contract. Since the applicant had no current assets and was, technically, insolvent, the applicant could only
use the bank bills as a means of finance if CVC or another party were prepared to guarantee the applicant's liability under the bills. It would be reasonable to expect that, in order to Induce
it to offer that guarantee, CVC would require security from the
applicant. Apart from the aircraft, the applicant could offer no significant security. Aircraft could provide only limited security for such a substantial borrowing. The evidence was that the aircraft could not be readily saleable if they had to be
realised as security. In these circumstances, it is likely that if CVC were to guarantee the applicant's liability under a bill
line in such a large amount, CVC would require to be appropriately compensated for the risk it was assuming. I accept that the applicant and CVC originally intended that their arrangement, as recorded in the 12 April minute, was
intended to be for "bridging" finance only. But it seems likely
that, if the coastwatch contract had remained on foot, this
temporary arrangement would have remained in place for the
duration of the contract for neither the applicant nor CVC had
any real choice about the matter.
From CVC's point of vlew, the "interest" of 2 0 per was apparently an acceptable rate. It was above the current bill
cent
rate, although that rate mlght, of course, increase over a
period. True, CVC would in the value of the aircraft over the period
also have run the risk of
depreciation
of the contract.
However, the applicant was obliged to maintain Its fleet properly in order to perform the coastwatch contract. As has been said, it is now agreed that approximately $4,000,000.00 would have been spent for this purpose. Further, the rlsk of signiflcant depreciation had to be assessed against the background of the possibillty of renewal of the coastwatch contract or of another, similar, contract becoming available in this country or elsewhere. Even if the appllcant did not win any new contract, the successful tenderer might have been Interested in acquiring
the appllcant's fleet. Moreover, the relatively high interest rate of 20 per cent per annum would provide some measure of
compensation if substantial depreciation did occur.
From the applicant's analysis, there appeared to be only two possible sources of
point of view, on a realistic
finance: (1) lease finance from an institutional lender which would cost, effectively, about 20 per cent per annum (i.e. an "interest" rate of about 17 per cent per annum plus an allowance liability, which liability would have to be guaranteed, presumably for some consideration, by CVC); ( 2 ) accommodation provided by CVC In return for a hiring fee or "interest" at the rate of 20 per cent per annum. This was the arrangement in fact in place on 12 September.
for esidual The cost to the appllcant of each of these avenues of
finance would have been approximately the same, i . e . 20 per cent
per annum. Because the CVC arrangement was already in place, lt
is likely that It would have continued during the entire period
of the contract. There was no cost advantage to the applicant In
approaching an institutional lender. An institutional lender,
if Introduced, would probably look to CVC not only to make over title to the aircraft, but also to provide a guarantee and possibly also security to secure the appllcant’s total liabillty under a leasing transactlon. This would be an obvious disincentive for CVC to change its existing arrangement with the applicant. In these circumstances, I think that it is probable
that this arrangement would have remained in place for the term of the coastwatch contract. In my opinion, if the contract had run its full term, it is probable that CVC would have retained ownership of the
aircraft, but would have hired them to the applicant In return for a hiring fee of 2 0 per cent per annum, that is, the sum of $3,390,000.00 being 20 per cent per annum on $5,650,000.00 over
three years. APPENDIX 6
The applicant's other claims for damages
"Reliance" loss
The applicant claims that, as a result of the breach of the contract by the Commonwealth, expenditure of $5,112,012.00 was thrown away in preparation for performance of the contract.
The applicant says that this amount was expended in reliance upon
the Commonwealth's promise to perform its obligations under the contract and that the applicant should be compensated
accordingly.
The major item of expenditure was the acquisition of the aircraft ($5,650,000.00).
cost
of
There was evidence
that if the aircraft had to be sold now there would be realised
approximately $1,424,229.00, from which selling expenses wouldhave to be deducted.
The applicant presses this claim in the alternative.
Its primary claim is that it is entltled to compensation for loss of the profits it would have earned, together wlth damages for
the non-recoverable expenditure incurred in preparing for the
contract. The applicant's secondary claim is for "reliance" damages only, as distinct from "expectation" damages. In support of its primary claim for damages for loss of profits and also for compensation for expense thrown away, the applicant refers to observations made by L.L. Fuller and W.R. Perdue, Jr. in "The Reliance Interest in Contract Damages" (1936)
46 Yale Law Journal 52 (at pp. 73-4) as follows:
"In distrnguishing between the reliance and the
expectation interests we encounter not so much a shifting line of divlsion as a miscellaneous group of cases which seem equally happy in either category. These two interests will furnish identlcal, or nearly identical, measures of recovery in at least three kinds of cases. First, where the plaintiff's reliance takes the form of =essential to the enforcement of the contract by him (such as partial performance of the contract or necessary preparations to perform) and the defendant breaks or repudiates the contract before complete performance has taken place, it is possible to classify the plaintiff's suit as resting either on the
expectation interest alone, or on a combination of the expectation and reliance interests. If a building contractor has finished half the structure when the property owner puts an end to the contract the contractor's declaration may list two items of damage: (1) expenditures actually made in performing or preparing to perform, and ( 2 ) the profit which he would have made on the whole contract. This looks like a combination of the reliance and the expectation interests, and it will necessarily be so analyzed if we restrict the scope of the expectation interest to what
may be called the net expectancy, in other words, if we make "the expectation interest" and "the lost profit" synonymous. But in cases where the plaintiff has undertaken performance or preparations to perform a profitable contract before the defendant's breach it
involves no distortion to
say that the plaintiff's
expectancy is really twofold and includes (1) reimbursement for what has been done, and ( 2 ) a profit in addition. This broader expectancy we may call the
ross expectation interest. Using this broader concept
?he contractor's suit in the case supposed will appear
to be founded entirely on the expectation interest..."
In addressing the question whether the "expectation interest" should set the limit of recovery, Fuller and Perdue conclude (at p.76):
l ' . . .a limitation on recovery in terms of the "net
expectation interest" would be absurd. That a building contractor stood to make only $200 on his contract as a whole should not prevent him from recovering, let us say, $5,000 as reimbursement for expenditures made before the defendant's breach."
There are difficulties in applying this reasoning here. In the first place, the major item of expenditure in the
project
was the cost of acquisition of the aircraft ($5,650,000.00).
This expense was met by CVC and not by the applicant. cvc retained title to the aircraft and hired them to the applicant for a fee or "interest" of 20 per cent per annum. CVC was not a party to the coastwatch contract and cannot, and does not, sue for its breach. But it is submitted on behalf of the applicant that, for the purpose of assessing damages here, the "corporate veil" should be pierced with the result that the applicant and CVC are to be treated as if they were one and the same corporate entity.
In my opinion, it is not
separate corporate identities of the applicant and CVC. It 1s
true that CVC held one-half of the applicant's share capital but,
for all purposes, they were distinct. Their separate
personalities were reflected in the terms of the hiring
arrangement negotiated between them. It is not, and could not
be, suggested that the hirlng fee was a "sham" or not otherwisepermissible to ignore the intended to create a legal liabillty. In the absence of any suggestion of a sham or a "facade", and none 1s made here, it 1s not possible to plerce the corporate vel1 and look through the applicant to CVC in the manner suggested by the applicant (see Sharrment Pty. Ltd. v. The Offlcial Trustee in Bankruptcy, Full Federal Court, 3 June 1988, unreported; - Dalco v. Federal Commissioner of Taxation 88 A.T.C. 4,649 at p. 4,652; National Dock Labour Board v. - Pinn, Macpherson J., unreported, "The Times", 17 November 1988; cf., in assessing damages in tort, Attorney-General v. Geothermal Produce N.Z. Ltd. [l9871 2
N.Z.L.R. 3 4 8 ) .
The appropriate measure of by applying the principles in Hadley v. Baxendale.
damages is to be
determlned
The assessment of the applicant's loss is to be determlned by making
a calculation of the kind indicated in T.C. Industrial Plant v.
Robert's Queensland, supra. In that calculation, In estimating
profits lost, there is picked up, as a component, expenditureincurred or anticipated to be incurred, by the applicant in
performing the contract. The present case is unlike, and may be
distinguished from cases such as - McRae v. Commonwealth Disposals
Commission (1951) 8 4 C.L.R. 377 at p.414 and C.C.C. Films
(London) Ltd, v. Impact Quadrant Films Ltd. 119851 1 Q.B. 16 at
p . 3 8 where It was impossible to assess whether there would have been returns sufficient to recoup the expenditure laid out.
In my opinion, the applicant 1s not entitled to "reliance" damages on either of the claims it now makes.
The claim for loss of goodwill
The applicant claims substantial damages for, in effect, alleged depreciation in the "corporate value" of the applicant as the result of the unlawful termination of the coastwatch contract.
The applicant relies upon evidence called by Hr. J.W.
Bracher, a chartered accountant. Hr. Bracher calculated the applicant's damages by adding together the following:
(a) The expected net return to the applicant for duration of the coastwatch contract less the expected
the
net return from activities after the termination of the contract;
(b) additional costs incurred by the applicant as a result
of the termination of the contract;
(c) the loss in corporate value of the applicant resulting from the termination of the contract. The claim is made up as follows:
...
profit from operating entire
Coastwatch contract 0,201,757
LESS: 3-year profit without
Coastwatch... 0
reduction in return to Amann
resulting te mination from 0,201,757
ADD: additional costs incurred
as a result termination... of 661,000
- - - - - - - - -
total revenue loss resulting from
0,942,751
termination ADD: loss in company value
contract
resulting from termination: annual net pre-tax
2,154,000 1990: profit,
income tax, 1990: 1, 74,094 annual after-tax profit 1,679,994
capitalisation rate... 15.00% net loss of capitalised
company value: 11,199,950
LESS: value of company
contrac : without 0 --_-_-----
11,199,958
TOTAL ESTIMATED LOSS $20,142,715"
The claim assumes that if the applicant had been
permitted to earned a reputation or goodwill which had a substantial value
perform
the
coastwatch
contract,
it would
have
in
its own right.
The claim must fail. I have already held, in accordance
with the principles in Hadley v. Baxendale, that the measure of the applicant's damages is to be computed in a way similar to that indicated in T.C. Industrial Plant v. Robert's Queensland, supra. On that approach, rt is not open to the applicant to make an additional claim for loss of goodwill or depreciation in Its corporate value (cf. Re Golomb [l9311 144 L.T. 583).
The claim for loss of the prospect of other contracts
The applicant further claims damages for loss of future
income from other contracts. The first claim is in respect of the chance of renewal of the coastwatch contract itself. This
is, in substance, a c l a m for damages for loss of a chance (see
Chaplin v. - Hicks [l9111 2 K.B. 786). It may be accepted that such a claim could be maintained if an economic value could be placed
on the chance (see B. Coote,
"Chance and the Burden of Proof in Contract and Tort" (1988) 62 A.L.J. 761 at pp. 767-8). It may also be accepted that it was
probable that the Commonwealth would again seek public tenders for the coastwatch contract in 1990. On behalf of the Commonwealth, it is submitted that the applicant's prospects of obtaining a renewal of the contract were minimal only, given its significant delay in starting up operations properly in September 1987. There is considerable force in the submission. But, in any event, it is impossible to estimate the profit margin, if there was any, under such a contract. In these circumstances, this claim must also fail.
The applicant further claims damages for loss of the chance to obtain the Commonwealth's contract for the surveillance of the Great Barrier Reef (Sector 50). Again, the applicant's
delay in commencing patrols in accordance with the terms of the coastwatch contract would, I think, be taken into account by the Commonwealth unfavourably to the applicant in deciding whether or
not to award this additional contract to the applicant. Again, it is impossible to estimate what margin of profit, if any, would have accrued under this contract if it had been obtained by the applicant. Mr. Gould gave evidence that the
infrastructure established by the applicant to perform the coastwatch contract would also have been able to service the Great Barrier Reef surveillance without any additional expense. It is difficult to accept that this could be so. For one thing,
the applicant's fleet was not in place as required by the
coastwatch contract on 12 September and it would have taken a
considerable time before the fleet was ready to perform in accordance with the contractual specification. In that period at least, there was no surplus capacity available to service another contract. Moreover, the Great Barrier Reef surveillance is now carried out using "dedicated" aircraft based at Townsville but
"over-nighting" at bases along the Queensland coast. The
applicant had no base at Townsville. There was also evidence
is likely that the next Great Barrier Reef surveillance
operating from Cairns, Townsville and Rockhampton under one, two
or three contracts.contract will operate differently, with several ircraft
that i t In all these circumstances, the claim must be re~ected.
I certify that this and the preceding pages are a true copy of the Reasons for
Judgment hereln of hls Honour Mr. JustlceBeaumont.
Assoclate
Dated: 21 December 1988
Counsel and Solicitors L.C. Gruzman Q.C., D.A. Cowdroy for Applicant: and A.M. Gruzman instructed by Owen Hodge and Son. Counsel and Solicltors D.E. Grieve Q.C., S.D. Robb, for Respondent: P.A. Sharp and C.P. Comans
instructed Australian by Government Solicitor.
Dates of hearing:
Date Judgment Delivered: 21 December 1988
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