Beckhaus v Brewarrina - [2004] NSWSC 840

NEW SOUTH WALES SUPREME COURT

CITATION: Beckhaus v Brewarrina [2004] NSWSC 840 revised - 1/12/2004

CURRENT JURISDICTION: Technology & Construction List

FILE NUMBER(S): 55025/02

HEARING DATE{S): 15 to 26 March 2004
17 to 20 May; 31 May, 2004
1 and 8 June 2004

JUDGMENT DATE: 16/09/2004

PARTIES:
Beckhaus Civil Pty Ltd v Brewarrina Shire Council

JUDGMENT OF: Master Macready

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
M. Rudge SC & D. Robertson for plaintiff
M.Christie & V. Culkoff for defendant

SOLICITORS:
Dutton Lawyers for plaintiff
Paul Ward-Harvey for defendant

CATCHWORDS:
Building and Construction - Contract - Claim for payment under contract to build earthwork levees - Whether payment claim valid - Cross-claim - Whether lump sum contract - Whether amount properly allowable for provisional variations - Whether practical completion achieved - Whether contractual requirements for progess claim met - Whether any breach of contract in respect of construction of levees - Whether Building and Construction Industry Security of Payment Act 1999 (NSW) applies -Misleading or deceptive conduct in the tender process.
Held: Practical completion not achieved. Contract was lump sum contract containing appropriate conditions for provisional quantities. Council entitled to damages for rectification of certain parts of the levees. Misleading and deceptive conduct established but no damges flow.

ACTS CITED:
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (NSW)

DECISION:
Paragraphs 318, 318.

JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY AND CONSTRUCTION LIST

Master Macready

Thursday 16 September 2004

55025/02 - BECKHAUS CIVIL PTY LIMITED v THE COUNCIL OF THE SHIRE OF BREWARINNA (A BODY INCORPORATED SOLELY BY REASON OF THE LOCAL GOVERNMENT ACT 1993 (NSW))

JUDGMENT

Master: These are proceedings in which the plaintiff claims against the Council a sum of $838,969.10 being the claimed balance under a contract for the construction of a series of earthwork levees around the town of Brewarrina in North Western New South Wales. There is a cross-claim by the Council against the plaintiff and its principal Mr Dennis Beckhaus. The cross-claim is brought against the plaintiff for breach of contract and seeks damages for rectification of the construction work carried out by the plaintiff. The cross-claim is also brought against the plaintiff and Mr Beckhaus under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). This claim alleges that there was misleading and deceptive information given as to the plaintiff's financial standing and the existence of a quality assurance program in the pre-tender process.
There is also a second cross-claim, which is brought by the plaintiff against Civil Engineering Testing Services Pty Ltd. That company carried out a series of geotechnical tests during the course of the contract on behalf of the plaintiff. The third cross-defendant did not appear to contest the second cross-claim and the plaintiff seeks to proceed against it in the event that it is unsuccessful in its defence of the defendant’s cross-claim. The principal of the third cross-defendant gave evidence in the proceedings.
A judge of the court has referred the whole of the proceedings to me for hearing.

Plaintiff's claim

The first claim made by the plaintiff is for the sum of $702,678.45 being the full amount of progress claim number 7 dated 26 April 2002. In the alternative a claim is made for the same amount under the Building and Construction Industry Security of Payment Act 1999 (NSW).
The plaintiff also claims on an alternative basis for damages for work done on the basis that it had completed the works under the contract and was entitled to recover its entitlement under the contract and variations which occurred during the course of the contract. The plaintiff had applied for practical completion in March 2003 which the Council denied. This alternative claim is in the sum of $838,969.10. During the course of the hearing the Council did not adduce evidence in respect of some variations and having regard to the size of some of them it was conceded that the plaintiff was entitled to succeed on variations numbered 1-9 and 12-15. The remaining variations, which are in issue, are numbers 10, 11,16,17,18,20 and 21. The plaintiff concedes variation number 19 in respect of gravel purchased by the plaintiff from the Council in an amount of $23,374.00.

Short chronology

The levees around the town of Brewarrina were originally constructed in 1976. In 1991 there was an audit conducted by the New South Wales Department of public works in respect of the levees in which recommendations were made for further work to upgrade the levees.
After the flood in the year 2000, during which the population of Brewarrina were heavily engaged in saving the existing levees, the Council commissioned a redesign of the levees with a view to upgrading them to make them more effective. There was a design of new works to upgrade the levees by PPK Environment & Infrastructure Pty Ltd (“PPK”). There was a tender process and PPK recommended to the Council that the tender of the plaintiff company be accepted. This report was made on 9 August 2001 and on 25 September 2001 the Council accepted the recommendation.
The contract was entered into 13 October 2001 and work commenced the following day. The contract incorporated the general conditions of contract 2124-1992 which provided for the position of a superintendent. Mr Komp, an employee of the Council, was appointed superintendent on 16 December 2002.
Work continued under the contract through until March 2002 when it became apparent to the Council that the plaintiff, having nearly completed the works, was about to apply for a certificate as to practical completion. On 21 March 2002 the Council removed Mr Komp as superintendent and Mr Corven was appointed as superintendent. He immediately set about what the plaintiff described as employing a contractual broom against the plaintiff and on 22 March 2002 he issued a series of directions to the plaintiff.
As a result of receiving the various test results Mr Corven sent a series of letters at the end of March outlining his views as to the plaintiff’s non-compliance with the contract. On 26 April 2002 progress claim 7 was lodged with the Council. The amount of the claim was for $702,678.45 payable by the Council to the plaintiff.
On 28 May 2002 Mr Corven issued progress certificate No 7 requiring payment by the plaintiff to the Council of $952,874.47.
These proceedings were commenced on 4 June 2002 and went through a number of interlocutory stages. These included an application for summary judgment on the plaintiff’s claim which I granted and an appeal to the Court of Appeal in which that summary judgment was set aside.

Council’s cross-claim for breach of contract

There were many witnesses called by the Council in respect of their cross-claim including experts in various fields of the geotechnical sciences and other engineering specialties. The principal experts for the Council were Professor Fell and Dr Truscott. Professor Fell inspected the levees in early 2003 and concluded that much of the fill in the levy banks was uncompacted, the fill material was highly erosive, the levees could be breached at several locations under conditions of high flood and that lives may be lost as a consequence. Dr Truscott carried out geotechnical investigations in the first half of 2003 and concluded the one or more of the levees would fail in the event of a flood and that the safety of the levees required urgent attention. Dr Burman gave the principal geotechnical evidence on the part of the plaintiff. Both he and other witnesses called by the plaintiff disputed the correctness of the Council’s testing and hence the opinions expressed by Dr Truscott and Professor Fell.
The Council’s evidence on its cross-claim addressed both questions of liability and costs of rectification. It is necessary in order to understand the matter, to describe in a general sense the nature of the works carried out under the contract and the issues which have arisen as a result of the testing carried out during and after completion of construction of the levees.

A short description of the works

The town was originally protected by what are known as the southern and northern levees. The contract included the upgrading of the northern levee and a small part of the southern levee. The balance of the southern levee became redundant because of the construction of new levees on the site of Charlton road and Tarrion Creek road. There was also constructed a new levee around parts of north Brewarrina which had not before been protected by the then existing southern and northern levees. The layout of the levees can be seen on the general layout plan, which is contained in various exhibits before the court. The construction of the levees on the site of the existing roads required a new road to be constructed on the top of the completed earth levee.
The levees were constructed with earth fill taken from particular locations known as “borrow pits”. At the commencement of work these areas were tested for appropriate soil properties and in particular to see how much meadow lime needed to be added in order to achieve an appropriate linear shrinkage, which was a requirement of the contract.
At a point between the northern and southern levees there was constructed a levee with concrete walls which was referred to in the evidence as the Doyle street levee. There is an issue in respect of the concrete testing carried out in respect of that concrete work.

Principal issues arising under the cross-claim

The following main issues were identified in general terms in the opening submissions:
1.Whether the construction of the levees achieved the contractual requirements, which specified a compaction to 95 percent minimum dry density,
2.Whether the contractual requirements for stabilisation of the levee bank material as set out in clause 8.10 of the specification, which required linear shrinkage of the soil to be less than 12 percent had been achieved,
3.Whether key trenches, which were required under the specification at the foot of the new levy banks, were installed,
4.The effectiveness of various road pavements which were constructed on the top of the levee banks, and
5.Whether soil around the culverts, which were part of the construction, had been sufficiently compacted.
It will no doubt be appreciated that the resolution of the above questions depend substantially upon the various geotechnical tests which were carried out both during the course of contract and after completion of the contract works. The various geotechnical tests were carried out by different organisations and they were generally referred to in the evidence and in expert reports by reference to the name of the organisation that carried out the tests.
During construction the plaintiff had an extensive programme of compaction and linear shrinkage testing carried out under the terms of the contract by the third cross-defendant Civil Engineering Testing Services Pty Ltd, a company that has been referred to in the evidence and reports as “CETS”. At the commencement of the contract the Council had a small number of tests carried out by way of audit by the company K & H Construction Services. This led to a confrontation between the plaintiff and the Council and in the event the Council carried out no further testing until the plaintiff had left the site.
In April 2002 after the plaintiff left the site, Douglas partners carried out a limited set of tests for the Council and gave a report, which generally recommended that the appropriate compaction had been achieved. On 25 March 2002 there were excavations for 13 tests carried out by Barnson Pty Ltd (“Barnson”) at various locations to determine linear shrinkage. Notice of this testing was given to the plaintiff who attended and received duplicate samples.
In April 2003 Barnson carried out a series of compaction tests under the direction of Gutteridge Haskins and Davy (“GHD”) on behalf of the council. A further test series was carried out in July 2003. These tests were carried out by the Council without the Council informing the plaintiff that the tests were to be conducted. They have generally been referred to in the evidence and the documents as the Barnson tests.
In August 2003 Golder & Associates (“Golder”) carried out a series of tests on the plaintiff's behalf and in the presence of the representatives of Barnson, GHD and the Council. At the same time there was some parallel testing by Barnson on behalf of the Council..

Plaintiff’s claim

The plaintiff’s claim is expressed on an alternative basis. Its principal claim is that it is entitled to the sum of $842,944.40 for breach of contract in respect of the work, which it has performed under the contract. The breach alleged is a breach of the provisions of clause 3.1 of the general conditions of contract, which requires the principal to pay for work executed and completed under the contract. This claim is made on the basis that the plaintiff will be successful in either defeating the Council's cross-claim which alleges that the works were not properly performed and contained a number of defects or successful to the extent that there has been substantial performance of the contract with the Council being allowed a deduction for defects.
As a secondary breach the plaintiff alleges that in breach of clause 42.5 of the general conditions, the Council failed to issue a certificate of practical completion for the works. Although the obligation to make payment under clause 3.1 of the general conditions is arguably not conditioned upon the issue of a certificate of practical completion, such a certificate is important for other purposes under the contract. Under clause 42.8 the entitlement to the release of retention monies by the contractor is by reason of a number of the provisions of the contract conditioned upon the issue of a certificate of practical completion. The certificate of practical completion is also necessary in order to claim interest on overdue payments under clause 42.9 of the contract.
Leaving aside the question of the cross-claim and the defects alleged by the Council, the following matters arise on this part of the claim.
1.Whether or not the plaintiff achieved practical completion within the terms of the contract,
2.Whether or not, as submitted by the Council, the contract was a lump sum contract,
3.Alternatively if it was not a lump sum contract, the amount properly allowable for provisional items, and
4. The amount properly allowable for variations.
In the event that it is found that the plaintiff did not achieve practical completion, the plaintiff advances its claim to recover on a contractual basis the amount of progress claim number 7 dated 26 April 2002 and alternatively the same amount under the Building and Construction Industry Security of Payment Act.
The issues, which arise under the contractual claim for progress claim number 7, relate to whether or not liability arose under clause 42.1 by reason of an alleged failure to supply information to the superintendent pursuant to that clause. This arises because although the superintendent failed to respond to the progress claim within the time limited by the contract, the Court of Appeal in The Council of the Shire of Brewarrina v Beckhaus Civil Pty Ltd [2003] NSWCA 4 has held that the supply of information pursuant to clause 42.1 is a condition precedent to liability arising under the clause. Although the defence to this claim also raised a defence concerning the failure to supply a statutory declaration as required by s43 (b) of the contract this was not relied upon in submissions no doubt because I had determined that matter adversely to the defendant in the summary judgment application and it was not the subject of the appeal.
In respect of the statutory claim for the progress payment the Council submits that as it is dependent upon the establishment of a contractual entitlement, that issue should follow the result of the contractual claim for the progress payment. This matter has however already been determined by me against the defendant in the summary judgment application. See Beckhaus Civil Pty Ltd v The Council of the Shire of Brewarrina [2002] NSWSC 960 at paras 52-77. Strangely enough, the Court of Appeal did not deal with this aspect of the judgment. The conclusion which I reached was adopted by Nicholas J in Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 who referred to the fact that it was consistent with the opinion of Heydon JA (as he then was) in Fyntray Constructions Pty Ltd v Macind Drainage and Hydraulic Services Pty Ltd [2002] NSWCA 238 at p 51.
I will deal now with these various aspects of the plaintiff’s claim.

Practical completion

Clause 42.5 of the General Conditions of Contract provides:
“The Contractor shall give the Superintendent at least 14 days notice of the date upon which the Contractor anticipates that Practical Completion will be reached.”
The clause then provides:
“When the Contractor is of the opinion that Practical Completion has been reached, the Contractor shall in writing request the Superintendent to issue a Certificate of Practical Completion.”
There is an obligation to issue such certificate within 14 days or give reasons in writing for not issuing the certificate. Practical Completion is defined as follows:
“’Practical Completion’ is that stage in the execution of the work under the Contract when --
(a)the Works are complete except for minor omissions and minor defects --
(i)which do not prevent the Works from being reasonably capable of being used for their intended purpose; and
(ii)which the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and
(iii)rectification of which will not prejudice the convenient use of the Works; and
(b)those tests which are required by the Contract to be carried out and passed before the Works reach Practical Completion have been carried out and passed; and
(c)documents and other information required under the Contract which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied.”
Mr Beckhaus gave evidence that shortly prior to 18 March 2002 he attended the site of the works and observed that the works had been completed by the plaintiff and were useable except for minor omissions or work for which the Council had not provided access. Photographic evidence supports this conclusion. He then formed the opinion that the works had reached practical completion. Following the forming of that opinion on 18 March 2002, the plaintiff wrote to the Council advising that the works had reached practical completion and that certification was requested. Reference was made to the following minor omissions:
“Complete installation and connect electricity to pumps (n.b. mains power not yet available)
Final seeding of embankments
Installation of trash racks
Tidy up borrow pits and works areas
Outstanding test results for concrete and earthworks
Outstanding inspections and test plan sign offs
Disestablish major plant”
Mr Corven, the new superintendent, was appointed on 21 March 2002. In cross examination he agreed that it was common ground that the works were fairly near completion at the time of his appointment. He expanded upon this evidence in re-examination to say that the appearance of the levee was such that there were only minor matters to be carried out. There was no list of minor omissions as defects issued by Mr Corven. A consideration of this evidence (leaving to one side for the moment the issues on the cross-claim) would indicate that there has been compliance with that part of the definition of practical completion as set out in sub-paragraph (a). It will be noted that in the letter of 18 March 2002 there was reference to “outstanding test results for concrete and earthworks”. This raises the question under sub-paragraph (b) of the definition of practical completion as to when such tests were required and completed.

In connection with the outstanding testing the following appears to be the position. In one of the requests on 22 March 2002, the superintendent wrote to the plaintiff requiring copies of test certificates pursuant to clause 5.6 of the specification. This related to concrete work. There were other requests in respect of requirements for surveys and also as to achievement of appropriate levels for road works. These matters are not concerned with this part of the definition that only concerns tests.
The relevant specification made provision for testing in three main areas. These were compaction testing, testing for linear shrinkage and concrete testing. Compaction control testing is referred to in clause 1.11 of the specification. Special condition 25 of the contract provided that soil control testing for the contract should be conducted by the contractor using suitably experienced personnel and a NATA registered laboratory. Clause 8.9 of the specification deals with achieving the necessary compaction and in particular with testing. It is apparent from these provisions that testing takes place during the course of the works. Clause 8.10 is a provision for stabilising soil with Gypsum to achieve the required 12% linear shrinkage criteria. Clause 8.11 provides for testing. Apart from requiring the appropriate linear shrinkage to be reached, the sections do not provide a regime for testing. Section 9 of the specification deals with the pavement, which is the material immediately below the finished surface. It has provisions for compaction and testing. This also is subject to ongoing testing during construction.
As will be demonstrated later, the testing for compaction and linear shrinkage in the levees during the course of the work up until the time of practical completion was either satisfactory or if not satisfactory the material was reworked to achieve the required specification limits. The technical specification did not require certificates to be made available in respect of compaction and frequently reporting on tests was done orally so that the work could proceed. In respect of compaction testing at the culverts the specification required one test per layer and, as I conclude later, this level of testing was not achieved.
In contrast, the provisions in the specification for concrete, which appear in s 5 of the specification, are slightly different. In particular under clause 5.6 there is a requirement for testing by an appropriate NATA laboratory in respect of each placement of concrete with appropriate provisions for the number of samples. The provisions also require the prompt supply of test certificates to the superintendent. It was this to which the superintendent was referring when he wrote his letter of 22 March asking for the certificates.
It is apparent that in respect of one small section of the Doyle Street wall, the concrete testing did not pass the required specification. In addition, it is plain that some of the testing was done by CETS which was not accredited for concrete testing although it was accredited with NATA for compaction and other testing.
Clause 5.13 of the specification in particular allows for the rejection of hardened concrete if it does not come up to the appropriate specified test strength. This test strength is obviously determined by the compressive tests, which are carried out in the course of work. The “under-strength” concrete that was identified in the earlier part of the Doyle Street wall was allowed to remain.
Under the specifications there clearly were a series of tests in respect of concrete which were required to have been passed, but did not pass. In order to deal with this problem the plaintiff submitted that the clause which deals with this in the definition of practical completion, was one that required the particular test to be a prerequisite to the issue of the certificate of practical completion. A consideration of sub-clause (b) shows that it is only concerned with the passing of tests and not the supply of written test results. There are perhaps two ways one can look at sub-clause (b). One is to consider it as referring to a requirement of passing a particular test as a condition of achieving practical completion. The other is to consider the sub-clause as simply imposing a temporal requirement in respect of tests before the works reach practical completion. On this latter view if the contract required, as it did in this case, compaction testing of the fill and strength testing of the concrete during the course of construction, then it was necessary that those tests be passed in that period of construction which was obviously before the works reached practical completion. A sensible construction of the contract indicates to me that it is the latter which is the correct construction.
In the instant case there was a small amount of concrete that failed its test. Thus there was no compliance with sub-clause (b). There might be compliance if the provisions were waived and it is thus necessary to see what happened in respect of the concrete that had failed its tests.
These failures were made known to Mr Komp shortly after the pour. He accepted the results and directed the plaintiff to leave the footings in place as he was of the view that there was a sufficient safety factor in the design. This is an acceptance of defective work under clause 30.5 of the general conditions. In these circumstances there is a waiver of the requirement for the test to be passed.
In respect of the testing at culvert locations it should be noted that the definition of practical completion addresses the contractual requirement for the number of tests to be carried out as well as passing of the tests. Clearly the required number was not carried out at the culverts. There does not appear to be any evidence that this fact was known to the Superintendent and accepted by him. There is thus no compliance with this requirement of the contract.
In respect of sub-paragraph (c) there does not appear to be any evidence of the Superintendent forming an opinion called for in that part of the definition. The Council put nothing in its submissions on these aspects. In these circumstances and leaving aside the cross-claim it is clear that under the terms of the contract the contractor did not achieve practical completion.

Was the contract a lump sum contract?

The Council's submission was that the contract entered into between the parties was a fixed lump sum which included provisional items which were required to be assessed and quoted on by the plaintiff in determining the lump sum prior to entering into the contract. The submissions relied both upon the proper construction of the contract and, to explain any ambiguity in the contract, upon certain pre-contractual documentation.
The Council relied upon the following description of the classical fixed-price or “lump sum” contract which appears in Hudson's Building and Engineering Contracts (11th Ed, 1994, p. 416):
“More substantial contracts of this kind will usually contain additional documents with itemised prices, often called ‘schedules of rates’ or ‘schedules of prices’ in the United Kingdom, but in these contracts they will have no pricing significance other than for valuing such variations as the owner may decide to call for under a power contained in a variation clause, or for valuation purposes if interim periodical payment, rather than fixed instalment payment, is called for. Sometimes these pricing documents may even contain estimated quantities of the whole work as well as the itemised prices, and in some cases may actually be called ‘bills of quantities’, with the prices grossed up to produce a total contract sum, and so indistinguishable from the pricing documents used in United Kingdom contracts where the quite different pricing intention is to re-measure the entire work and re-calculate the contract price in the light of the final ‘as built’ quantities, whether or not variations have been ordered. In lump sum contracts, however, such a document, even if so entitled, will simply be a guide to assist tendering contractors in arriving at their lump sum tenders, with its pricing significance limited to the valuation of variations, should these be ordered, or for interim payment valuations.”
The provisions of the contract to which the Council referred in submissions on the construction were conveniently set out in those submissions which were in these terms:
“28. The Conditions of Tender, Clause 1 (Exhibit J, page 77), headed ‘Nature of Tender’ contain the following express provision:
‘The Works … shall be completed for a Lump Sum Price in accordance with the Agreement, fixed and firm for the duration of the Agreement. The Lump Sum Price shall be for completion of the whole of the works described and intended in the Tender Documents…’
29. This was followed by an express provision: ‘This Contract will not be subject to Rise and Fall’: (Conditions of Tender Clause 2, Exhibit J, page 77).
30. Further, Special Condition 18 (Exhibit J, page 123) expressly states:
‘The Lump Sum accepted by the Principal is deemed to include the cost of the whole of the work under the Contract. A Schedule of Prices has been included for the assessment of Progress Payments and valuation of Variations’. (Emphasis added)
31. In addition, Special Condition 20 (Exhibit J, page 124) also provides:
‘The quoted lump sum price and rates quoted in the Schedule of Prices are to be fixed and firm’.
(See also SC 10 and SC 17, Exhibit J, pages120 and 123)
32. The Schedule of Prices - included with the Plaintiff’s Tender Submission and forming part of the Contract at Exhibit J (commencing page 49) - provides, inter alia:
‘This Schedule of Prices shows the components of the Tender Sum including Provisional Sums with various rates for use in tender evaluation and, should this Tender be accepted, for the assessment of progress Payments and the valuation of Variations, where applicable…The sum of the amounts entered for all Tender Sum components Items is the Lump Sum amount payable for completion of the whole of the work described and shown in the Tender Documents…The quantities shown are derived from solid measurement and shall be checked by the Tenderer and the quantities adjusted if necessary…’
(See also Exhibit J at p 48 ‘For the Lump Sum …’)”
On the face of the provisions to which the Council has referred the schedule of prices would appear only to be for the purpose of evaluation and assessment of variations and progress payments. A clue to the position of provisional sums is a reference to that expression in the opening paragraph of the schedule of prices referred to immediately above. The general conditions of contract contain two definitions that are applicable. They are:
“’Provisional sum’ includes monetary sum, contingency sum and prime cost item;
‘Schedule of rates’ means any schedule included in the contract which, in respect of any section or item of work to be carried out, shows a rate or respective rates of payment for the execution of that work and which may also include lump sums, provisional sums, other sums, quantities and prices;”
The general conditions therefore clearly contemplate that there may be provisional sums. Indeed, clause 11 of the general conditions provides that where a provisional sum is included in the contract and is performed by the contractor it is to be valued under clause 40.5 of the general conditions. Such a valuation then creates a liability on the principal to make payment for the amount ascertained by the Superintendent at the rates provided for under the contract.
However, perusal of the schedule of prices indicates a different position to the clause referred to by the Council. The schedule of prices is in two parts described as separable portion A and separable portion B. Separable portion B dealt with the Charlton Road upgrade while separable portion A dealt with the remainder of the works. When one looks at the detailed listing of prices one finds a number of items that are particularly identified as provisional quantities.
For example, the following items appear in the listing for separable portion A:
“Item 6(iv). Excavate material as found in the Key Trenches and cart to spoil within 2km of site (provisional quantity)
Item 6(v). Excavate unsuitable material from embankment foundation and base of Key Trench and cart to spoil within 2 km of site and replace with compacted Zone A Clayfill material (provisional quantity)
Item 6(vi). Selectively win from borrow or load from existing levee clay stockpile, place and compacted Zone A clayfill material to Key Trench (provisional quantity).”
After the description, there then follow columns for “estimated quantity”, unit, rate and amount.
At the end of the listing for each separable portion there are notes referring to expressions used in the listing. One of the notes is as follows:
“’Provisional Quantity’ refers to items where the quantity is unknown. Payment for provisional items will be made by multiplying the tendered rate by the measured quantity. Measurement will be by the superintendent.”
On its face these words are quite contrary to the general expressions in the special conditions of contract which appear earlier and to which I have already referred.
The specification has a more detailed description of the procedures involved in the activities, which are referred to as “provisional quantities” in the schedule of prices. For example clause 8.3 deals with unsuitable material and the procedures for removal of it and inspection by the superintendent before further progress. The clause includes the following:
“The removal of replacement unsuitable material shall be paid as a provisional quantity and, as such, it is necessary that the contractor provides adequate survey to calculate the quantity of unsuitable material removed. Survey calculation shall be afforded to the superintendent for checking and approval for payment purposes.”
The excavation of Key trenches is another example. The procedures are set out in clause 8.5 of the specification that provides inter alia:
“Payment for excavation of material from Key trench and removal to spoil shall be made under the provisional item in the schedule of prices.”
Another example is the cost of additional gypsum over and above the 5 percent minimum limit under the contract. Clause 8.10 of the specifications provides that the superintendent (sic) shall bear the additional cost at the rate given in the bill of prices.
The only direct inconsistency is between special conditions 18 of the contract and the schedule of prices, both of which documents, like the specification, are incorporated in the contract. Clause 8.1 of the general conditions deals with discrepancies in contract documents. The opening words of the clause are as follows:
“The several documents forming the contract are to be taken as mutually explanatory of one another.”
The clause then goes on to deal with the situation where a discrepancy is discovered during the course of the contract and provides that if such discrepancy causes the contractor to incur more or less cost than could reasonably have been anticipated, that the difference shall be valued under clause 40.5. Given that I am now dealing with the final resolution of the matter, I should take into account the words to which I have referred in construing the contract.
The submissions made on behalf of the Council did not, apart from the general reference to the provisions I have quoted above, identify any particular ambiguity in language, which would make it necessary for the court to have recourse to the evidence of surrounding circumstances in order to explain any such ambiguity. In my view it is a matter of resolving the particular inconsistency thrown up by the words in special conditions 18.
A perusal of the more detailed provisions in the specification to which I have referred to above indicates the fact that the parties would not be able to identify the particular quantities which are referred to in those parts of the specification and the schedule of prices. It is only when the job is underway that particular quantities can be ascertained. In these circumstances it seems to me that the more particular provisions should prevail and accordingly, although the contract may be described as a lump sum contract, it does contain appropriate conditions for certain provisional quantities which are, under the terms of the contract, to be determined by measurement.

The amount properly allowable for provisional items

The amount of the provisional quantity items claimed by the plaintiff totals $89,167.00 although the Council in its submissions refers to the sum of $91,021.00. Leaving aside questions which I have already determined as to whether the contract was a lump sum contract, the Council's basis for resisting this claim is that the plaintiff has not demonstrated that the items were measured and approved by the superintendent in accordance with the contract.
It was only in the submission of progress claim number 7 that the plaintiff claimed an allowance by showing an increase over and above 100 percent for the relevant items. The superintendent rejected that claim and there is no evidence of him having measured the variation as required under the contract. Given the nature of these proceedings, the matter could be determined if there was evidence of the measurement of the amount. Neither Mr Beckhaus nor Mr McCartney gave any evidence of the measurement of these items. It is referred to as a percentage in progress claim 7. They were supported by log summaries of measurements forwarded undercover of letters from the plaintiff to the Council of 10 April 2002, 24 April 2002 and 1 May 2002. There was no cross examination on the amount of this claim.
In these circumstances, it seems that the plaintiff has measured the volumes in the claim and accordingly the amount should be allowed.

The amount properly allowable for variations

I will now deal with the various variations claimed by the plaintiff.

Variation 10

The plaintiff’s submissions which adequately described the variation were in these terms:
“Variation 10 relates to additional concrete required for the construction of eight retaining walls to a greater height than allowed for in the contract.
A quote in respect of the additional cost was provided prior to commencement of the work (Tab 33 of Ex H). The quotation was for an additional cost of $30,400 but in fact less additional concrete than expected was required and the final additional cost as agreed between Mr Stratigis and Mr Komp was $15,089 plus GST. (See paragraph 67(b) of Exhibit G and paragraph 7(b)(ii)A of Exhibit O).
Both sub-paragraph (j) of the particulars to paragraph C39 of the Amended Summons and paragraph 67(6) of Exhibit G erroneously described the additional concrete as being for the Doyle Street Levee. In paragraph 23 of Ex Q Mr Beckhaus corrected this error and provided further detail in relation to the increased height of the retaining walls.
Mr Beckhaus was not cross examined in relation to this variation.”
The Council raised the following defences to this claim:
1.Non compliance with clause 40 of the general conditions, which requires a direction by the superintendent or approval in writing by the superintendent,
2.No power in the superintendent to approve variations without the prior written consent of the principal,
3.No evidence of an agreement on the amount of the variation said to be agreed between Mr Strategis and Mr Komp, and
4. No credit for a reduction in length of 10 m.
In relation to the first point Annexure G to Mr Komp’s statement is a fax of 29 January 2002 which having regard to Mr Komp’s evidence in chief is a relevant direction within the terms of clause 40. There is in evidence a quotation for some $30,400.00 but the evidence also makes it plain that the amount was somewhat less. With regard to the second point above it is clear that the actual instrument of delegation given to Mr Komp provided that any variation should not be approved without the principal’s prior written approval. Although a breach of this provision might cause some difficulty between the then superintendent and his principal it is not relevant to the exercise of his functions under the contract as superintendent. There is no evidence of any agreement on the amount of the variation. There is a quotation for the additional material. The original specification provided for masonry block walls and the quotation referred to the fact that the original walls were 33 cubic metres and they estimated the new ones would be 73 cubic metres. Evidence of the concrete pours indicates that 77.8 cubic metres of concrete was required and this means that the variation actually used an additional 44.8 cubic metres.

The quotation claimed a rate at $760.00 per cubic metre being derived from a calculation of the volume and tendered amount in the tender. That may have been an appropriate measure for a masonry concrete wall but it was not appropriate for poured concrete. A note was given for a similar type of work, namely, at item 9ii being for the concrete footings. It was $420.00 per cubic metre. Using that figure an appropriate amount would be $19,040.00. However, the plaintiff only ever claimed $15,089.00 for this work and does not seek to claim any more. In this case I am satisfied that the plaintiff is entitled to $15,089.00 for this variation.

Variation 11

The plaintiff submissions on this variation were as follows:
“This variation relates to additional excavation required for the North Brewarrina Access Road. The amount in issue is $455 plus GST. Mr Beckhaus provided details of the variation in paragraph 67(c) of Exhibit G. He was not cross examined in relation to this evidence.”
Although there is minimal evidence that this variation was measured on-site there is no evidence of any approval or direction.
In these circumstances the variation should be refused.

Variation 16

The plaintiff’s submission in relation to this variation were as follows:
“This variation relates to additional testing costs. The amount claimed is $26,348 plus GST. The basis of calculation of this amount is set out in the letters dated 17 April 2002 and 24 April 2002 which are tabs 34 and 35 to Exhibit H.
This variation is dealt with by Mr Beckhaus at paragraph 67(d) of Exhibit G. Mr Beckhaus was not cross examined in relation to this evidence.
The Plaintiff’s entitlement to the costs of additional testing arises pursuant to the terms of the letter from the Plaintiff to Mr Komp on behalf of the Defendant dated 10 September 2001 which was incorporated into the contract (pages 26-27 of Exhibit J).
The relevant provision is item 9 which provides:
‘9 Testing – Item 16 (SP1) and 7(SP2) are not priced as provisional. Any additional tests required would be charged at their relevant rate but a lesser testing regime will not reduce these values.’
The references to item 16 (SP1) and 7(SP2) are clearly references to the Schedule of Prices included in the Plaintiff’s tender which was incorporated into the Contract (pages 49-61 of Exhibit J).
Item 16 (SP1) is clearly Item 16 of the Schedule relating to Separable Portion A (page 56 of Exhibit J). That item, next to which a figure of $32,000 is listed, provides:
‘16 Geotechnical/Concrete Testing in accordance with Specification (Provisional Quantity).’
Item 7 (SP2) is clearly Item 7 of the Schedule relating to Separable Portion B. (page 59 of Exhibit J). That item, next to which a figure of $18,000 is listed, provides:
‘7 Geotechnical/concrete testing in accordance with Specification (Provisional Quantity).’
In the Plaintiff’s submission it is clear that the intention behind Item 9 of the letter of 10 September 2001 was that the Plaintiff would be entitled to be paid the sum of $50,000 in respect of testing, even if the cost to the Plaintiff of testing in accordance with the specification was less than $50,000. However if the cost of testing exceeded $50,000, the Plaintiff was to be entitled to reimbursement of such additional costs.
This intention appears clearly both from the words of item 9 in the letter of 10 September 2001 and from the fact that in the absence of item 9 the costs of testing would have been a fully provisional sum by reason of the terms of Items 16 (of Separable Portion A) and 7 (of Separable Portion B) of the Schedule of Prices.
As is demonstrated in the schedule attached to the letter of 17 April 2002 (Tab 34 to Exhibit H) the sum claimed by the Plaintiff as variation 16 is the additional costs of testing incurred by the Plaintiff in excess of the $50,000 allowed in the Schedule of Prices.
Pursuant to the terms of Item 9 of the letter of 10 September 2001 the Plaintiff is entitled to those costs as a provisional sum.”
What is not apparent from the plaintiff's submissions is that the letter of 10 September 2001 was a pre tender letter, which set out a list of items that were to be discussed at a pre-contract meeting on 17 September 2001. The letter asked the Council to consider that and other items in the discussion. The evidence of the outcome of such discussions, which occurred before the execution of the contract, was rejected. The written document, which was executed, was a one-page formal instrument of agreement. It incorporated by attachment a number of different documents. For example, the tender, special conditions, specification and Beckhaus Pty Ltd post-tender correspondence. It also incorporated minutes of a post tender meeting held on 8 August 2001 but did not incorporate the minutes of the meeting held on 17 September 2001 at which the plaintiff in its letter of 10 September 2001 had asked that a number of matters be considered. In a letter written on the day after the acceptance of the tender on 25 September 2001 the plaintiff did not refer to the particular matter in question. There is thus no correspondence or other document which puts item 9 in the letter any higher than a request for discussion. There is thus no provision in the contract for the payment of any extra amount for testing.
Clearly in the letter Mr Beckhaus is referring to the fact, which appears on the face of his tender document, that his tender was for a lump sum figure. In my view there is no entitlement to this variation.

Variation 17

The submissions on this variation were confused because the plaintiff in its submissions on the variation in chief addressed the claim for provisional quantities, which I have dealt with earlier. In its submissions in reply it says that variation 17 does not relate to excavation and filling of key trenches but rather to the conditioning of soil for the filling of key trenches. It claims that this is a separate item to what is dealt with by way of provisional items in the schedule of prices when it deals with key trenches. The costs are said to be at the agreed rate as per item 5 (i) of separable portion A of the schedule of prices for stabilising additional soil not included with items 4 (ii) or 5 (i) of separable portion A or item 4 of separable portion B.
The actual letter making the claim is dated 24 April 2002. The letter talks of the measurement of provisional items and then goes on to describe the present claim in these terms:
“Assessment of these quantities have let us to find that no allowance has been made within the schedule for the provision of zone A material less than 12 percent linear shrinkage for these extra volumes or indeed for any other unsuitable removed during the work. In this regard we hereby provide details of claim for this work based on stabilisation rates shown in the schedule.”
The claim is then made for a volume of material at the rate of $5.20 per cubic metre totalling $106,240.40. It is the rate that is referred to in item 5 (i) of the schedule of prices.
The first question is whether the requirement, for instance under item 6 (vi), includes any necessary stabilisation of that material. The terms of that clause envisages the whole of the process, namely taking from the borrow pit, transport, placing and compaction of the zone A clay fill material. The material to be placed must have been stabilised. Borrow pit stabilisation is dealt with under 4 (ii). What the plaintiff is saying is that the quantities referred to in item 4 (ii) namely 47370, or if existing levee material under 5 (i) is used, namely 10,920 did not include an estimate of the volume required for key trenches and the replacement of unsuitable material.
If that is the case, then there is no item for the stabilisation of the additional material. The plaintiff would not be able to estimate the amount to include in the quantities to which I have referred because it was not known at the time of tender how much material would be excavated from key trenches or deemed as unsuitable material. Those volumes are quite properly dealt with by provisional quantities in the schedule of prices. The plaintiff has adopted the correct procedure and used only stabilised material. In these circumstances there is a clear omission of necessary work from a schedule of prices and the plaintiff should be entitled to recover in respect of this item under clause 3.3(a) of the general conditions.
The remaining question is whether it is factually correct that the additional volume of material was not included in the estimated quantities for the two particular items to which I have referred. There was cross examination of Mr Beckhaus on this aspect but unfortunately the cross examination put totals to Mr Beckhaus, which included items, which were not part of the provisional quantities. This means that his cross examination is of no assistance. According to the letters for the submission of the claim, the appropriate estimation has been made. Accordingly, I am satisfied that the additional quantities which had to be stabilised were not included in the fixed prices for stabilisation estimated in the schedule of prices. In these circumstances the plaintiff is entitled to be paid for this variation in the sum of $106,240.40.

Variation 18

The plaintiff concedes that it cannot succeed on this variation.

Variation 20

This variation relates to the costs incurred in preparing measurements of provisional quantities as required by the superintendent by letter dated 22 March 2002 (tab 36 of Exhibit 11). The amount claimed is $650.00 plus GST.
The plaintiff’s submission was that these costs are payable by the Council either pursuant to clause 31.7 of the General Conditions of Contract as a cost of testing (pursuant to clause 31.1, “test” includes measure), or pursuant to the last paragraph of clause 40.5 of the General Conditions of Contract.
Clause 31.7 provides the costs of and incidental to testing that shall be valued under clause 40.5 and shall be borne by the principal or paid by the principal to the contractor unless, inter alia, the contract provides for the contractor to bear the costs. The request was made in respect of clause 8.3, 8.4 and 8.5 of the specification. In clause 8.3 the contractor is to provide an adequate survey to calculate the quantity of unsuitable material removed. In 8.5 the contractor shall allow for such a survey and is obliged to supply the survey information. Clause 8.4 is silent on the matter.
In these circumstances I am not satisfied that the plaintiff is entitled to this variation or any part thereof as the evidence does not address each item of the specification.

Variation 21

This variation claim is summarised in the following submissions made by the plaintiff:
“Variation 21 reflects the costs to the Plaintiff of holding its machinery in Brewarrina after the Plaintiff sought practical completion, in order to rectify any defects notified by the Superintendent. Because the Superintendent failed to grant Practical Completion and failed to provide a list of defects, the Plaintiff was obliged to keep its machinery and employees on standby for over a month.
The cost of keeping equipment and employees on standby is payable by the Defendant either as delay coasts pursuant to Clause 36 of the General Terms and Conditions (Exhibit A) or alternatively as damages for breach of Contract by reason of the Defendant’s failure to ensure the Superintendent acted promptly to issue a list of defects.
The Plaintiff notified the Defendant of the delay costs being incurred by letter dated 4 April 2002 (Tab 40 to Exhibit H), and notified the Defendant of the amount claimed by letter dated 29 May 2002 (Tab 41 to Exhibit H).
Mr Beckhaus was not cross examined in relation the calculation of the delay costs. Nor was it put to Mr Beckhaus that in fact those costs had not been incurred.
The Defendant’s resistance to the Plaintiff’s claim in respect of variation 21 appears to rest on the proposition expressed in paragraph 113 of Mr Corven’s affidavit of 5 March 2004 that there were during the relevant period outstanding directions requiring the Plaintiff to rectify or complete works so that the delays were not the responsibility of the Defendant.
In the Plaintiff’s submission none of the purported directions referred to by Mr Corven was properly issued. However, that question raises issues which are the subject of evidence on the cross-claim which has not been concluded. Therefore this issue cannot properly be the subject of submissions at this stage.”
The Council agreed that the variation raised issues on the cross-claim, which will require reference to that evidence and my findings thereon in order to determine the claim. The Council also raised various directions from the Superintendent Mr Corven, which it says required the plaintiff to rectify or complete certain works and to provide test certificates. In part, these matters have been dealt with by me when dealing with the claim for a declaration in respect of the date of practical completion and also in part in respect of the matters which I will consider under the next heading. However, given my findings later on the cross-claim, the parties may wish to make further submissions on this claim. I will receive these and deal with them in due course.

Supply of information in respect of progress claim No 7

As I stated in my earlier judgment on the summary judgment application in this matter, the entitlement to receive information is based upon the opening sub-paragraph of clause 42.1 of the general conditions. That provision requires the contractor to deliver "to the superintendent claims for payment supported by evidence of the amount due to the contractor and such information as the superintendent may reasonably require". On a first reading of this clause it would seem that the claim, when delivered, would need to be supported by the appropriate information. The superintendent would need to have identified the information prior to the lodgement of the claim. Making a request after the lodgement of the claim would not be in accordance with the clause. The Court of Appeal approved this approach.
On 22 March 2002 Mr Corven issued two directions for information only one of which appeared to be related to an assessment of a progress claim. That was the letter in which he asked for surveys to be provided for the calculation and determination of payment for provisional sums regarding various numerated items. The information he required was to be received no later than 4 pm on Thursday 28 March 2002.
Progress claim no 6 was lodged on 27 March 2002 and the information requested by Mr Corven in his letter of 22 March 2002 had not been supplied by the time it was required on 28 March 2002.
I am, of course, concerned with progress claim no 7 which was lodged on 26 April 2002.
In a letter written by Mr Corven on 18 April 2002 the following was said:
"I have reviewed my files including those handed to me by the previous superintendent and have not found any progress reports as is required under clause 22 of the special conditions of contract. I advise that your submission of progress claims do not constitute progress reports.
Accordingly I confirm the advice of 17 April 2002 that I am unable to agree to your proposed progress meeting on 18 April 2002 until such time as I have received from you a progress report on the whole of the contract to date in the format that I have attached.
I direct that you provide me with a progress report in accordance with the attached format by 4.00 pm on 30 April 2002."
The letter enclosed a form headed “contractor’s monthly report”, which was the form which was filled out and submitted under cover of letter of 29 April 2002 from the contractor to Council. In a letter of 3 May 2002, Mr Corven indicated that the information supplied in the report was not sufficient.
What Mr Corven had probably not directed his attention to at that stage were the precise provisions of special condition 22 which dealt with the submission of progress reports. That provided that the contractor shall issue monthly progress reports in a format mutually agreed by the contractor and the superintendent. As became perfectly plain during Mr Corven’s cross examination, he sought no agreement on the form of the report prior to submitting it and he was aware at the time that the parties had dealt with the matter orally on site. Mr Komp who was the former superintendent had not required any progress report. In my view the attempt by Mr Corven to unilaterally impose a form of reporting without seeking to agree to an appropriate format beforehand was not reasonable in the circumstances. Accordingly, I would not regard this request as one which would be a condition precedent to the obligation to issue a progress certificate.
I note also that unlike the hearing before me on the summary judgment application there was no evidence by Mr Corven as to his purpose in sending the letter of 18 April 2002.
I return again to the question of the request for survey material, which was required in the letter of 22 March 2002. Clearly it was supplied, as I have mentioned for progress claim no 6. By the time progress claim no 7 was issued there were claims for additional material by way of provisional sums. Clause 8.3 of the specification which deals with unsuitable material requires the contractor to provide an “adequate survey to calculate the quantity of unsuitable material removed. The survey calculation shall be forwarded to the superintendent for checking and approval for payment purposes…”
Clause 8.5 which deals with key trench excavation and other provisional items provides that “the contractor shall allow for survey pick up of the excavated key trench prior to backfill and forwarding of the survey data in .DXF4.ASCII the format for calculation of solid quantities by the superintendent”. The provision of this material was first referred to in a letter of 10 April 2002from the plaintiff to the Council.
According to the covering letter for the progress claim no 7, the original letter was to be hand delivered by Mr Strategis on the following Monday that was in fact 29 April 2002. A letter of that date refers to the fact that such information had been completed and submitted. The letter then goes on to deal with the cost of such work. What actually happened seems to be reflected in a letter from the plaintiff to the Council of 1 May 2002 which was in these terms:
“We note that you would not accept measurement logs for provisional quantities offered to you by John Strategis at your office last Monday. Of course you are well aware that (on 22/03/02) you directed us to supply this information. ‘Required for calculation and determination of payment for provisional sums…in CSI schedule of prices’.”
Not only have we supplied these log surveys (taken by our site supervisor in agreement with the superintendent) but we have calculated the quantities so removed and made the claim in pc#7. You should also be aware that the responsibility for these measurements rested with the superintendent who has advised us of our intention to make a claim (BRWNFX SUPT41) for costs of preparing these records and measurements.
The superintendent has a responsibility under the contract to receive and assess claims made by the contractor. We attach herewith the log summaries prepared by John. Please assess them in the next progress certificate.”
No reference was made in the affidavit material of Mr Corven to the insufficiency of the material which apparently was tendered on the lodgement of the original progress claim no 7.
There was some debate in cross examination about the supply of this information and whether or not it was survey information. The situation that emerged was as follows:
“Q. We touched on this morning. In relation to the key
trenches, you did seek survey information from Mr
Beckhaus?
A. Yes, I did.
Q. You sought that information pursuant to clauses 8.3,
8.4 and 8.5 of the technical specification?
A. I believe they're appropriate clauses, yes.
Q. Your second letter in behind tab 3, the letter of 22
March written one day after you embarked upon your job as
superintendent; you see that?
A. Yes, that's correct.
Q. You accept now that to have been an oral agreement
between Beckhaus and Mr Komp that such survey information
was not required?
A. Yes.
Q. Notwithstanding that you assisted upon his supply?
A. No.
Q. Mr Stratigis ultimately provided you with a survey
that he had carried out?
A. No, he provided me with some calculations based on the
drawings.
Q. When you discovered this agreement. Did you write
back and say: We no longer now require survey information
or not.
A. Yes - Not in those terms.
Q. You didn't, did you?
A. But I did say this morning when you drew my attention
to one of these documents clause 17 - item 17 that I had
agreed that I understood there was an agreement.
Q. Before you wrote any of the letters that you wrote
seeking documents and information to Mr Beckhaus in March,
did you go and sit down and have a hand over meeting with
Mr Komp to find what you could ask for and what you
wouldn't having regard to what had gone on before?
A. No, I didn't.
Q. You think that would have been something that a
superintendent who is charged with acting reasonably and
impartially ought to have done?
A. Was that a question?
Q. Yes. Do you think that a superintendent charged with
the obligation of acting impartially and fairly, ought to
have spoken to the previous superintendent in some hand
over meeting before going ahead with issuing directions?
A. Mr Komp still-.
Q. Do you think it was something that ought to have been
done?
A. In normal circumstances Mr Komp did do work for
council and I did have several conversations with him.
Q. You didn't have any discussions before you wrote your
letters of the 22 or so March?
A. That's irrelevant. The information which was required
in the contract wasn't in the documents handed to council.
Q. If it wasn't in council's file irrespective of whether
it was required by Mr Komp or not, you took the view that
you could demand it?
A. It was required under the contract.
Q. If the information that was required under the
contract was not in the council's file and irrespective of
whether or not Mr Komp during his administration had
required it, you took the view that you had justification
for demanding this provision?
A. Yes.
Q. You regard such a stance as being one which
demonstrates, on your part, that you were acting
reasonably and impartially?
A. Yes, these were simple requests for information. If
the contractor had an agreement with the previous
superintendent that the information was not required, then
surely he would have advised me of that upon receipt of my
requests for information.”

Mr Corven had not taken the trouble to acquaint himself fully with the project and the arrangements in hand between the contractor and the previous superintendent. It seems to me somewhat unreasonable that at the end of the contract, after the opportunity for survey had passed, for him to then insist upon survey information rather than the logs of the material taken. In these circumstances I do not think that the superintendent was acting reasonably.
It follows that there was no breach of the condition in respect of progress claim no 7.

The cross-claim

The cross-claim includes claims for damages for breach of contract and damages and orders pursuant to various sections of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). I will deal first with the claim for damages for breach of contract. It is to be borne in mind that the council thus has cross-claimed and has the onus of proof in respect of the cross-claim. In this regard section 140 of the Evidence Act 1995 (NSW) should be noted. It repeats in some respects the common law and is in these terms:
“140 Civil proceedings: standard of proof
(1)In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2)Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a)the nature of the cause of action or defence, and
(b)the nature of the subject-matter of the proceeding, and
(c) the gravity of the matters alleged.”
The reason for mentioning this section is that much emphasis has been placed in the Council’s submissions upon the gravity of the consequences if the levies should fail. I have earlier referred to the general conclusions expressed by Professor Fell and Dr Truscott and their accounts in terms of danger to the population of the town of Brewarrina. Reference was made to the 1991 audit which referred to the substantial costs which would result from flooding which would cause extensive damage to the town and include injuries, loss of life and trauma.
In this respect, the project with which this case is now concerned is like many civil engineering projects in the State insofar as it is one that is undertaken for the public good and the public safety. As to precisely how I should take into account the issue in respect of public safety was not addressed in submissions. To the extent that there are submissions that there has been a wilful disregard of the contractual requirements, no doubt any decision on that matter would need to take into account the seriousness of any such conduct in terms of public safety. It does not however mean that because public safety is involved there should be a lesser standard of satisfaction in respect of a decision on the cross-claim.
It should also be appreciated in respect of this case that although one expert expressed views about the inadequacy of the design of the levies the appropriateness or otherwise of the design is not a question that is raised in these proceedings. The proceedings only deal with the construction of the levees as specified in the contract.
It will be necessary to look at the evidence of the Council's principal experts on each of the main areas concerned in the cross-claim. I will first deal with the most critical area, namely, whether or not an appropriate standard of compaction was achieved in accordance with the contract specifications. In doing this I will first look at the nature of the evidence given by Professor Fell and Dr Truscott and then move to a detailed consideration of the basic facts upon which their conclusions are based.

Compaction

The principle requirement for the compaction of earthworks is contained in clause 8.9 of the technical specification. For the purposes of this case the important clause is clause 8.9.2 which is in the following form:
“8.9.2 Levee Embankments
This clause applies to Zone A Clayfill as well as Material Replacing unsuitable Material, and backfill to the Discharge Pipes and Stormwater Drainage Pipes.
Materials shall be uniformly compacted in finished layers not exceeding 300mm in thickness by the use of a padfoot roller or similar which provides a kneading method of compaction. The use of power tampers in compacting thin layers shall be applied for al areas which cannot be compacted using a roller.
Materials shall be placed and compacted to achieve a minimum Hilf Density Ratio of 95% (Standard) when tested in accordance with test method AS1289 – 5.7.1. The Hilf moisture variation shall be within – 3% dry to )% wet of the Optimum Moisture Content.
Care shall be exercise during lapses of construction to prevent surface drying of these zones. Should this occur then approved corrective action shall be employed. This action shall consist of either scarifying the surface, rewetting and compacting to the above standard or removal of the upper dry material t the satisfaction of the Superintendent.”
Section 3 of the specification dealt with stormwater drainage including culverts, reference to which is made throughout the evidence. Clause 3.7 of the specification provides for a similar percentage and maximum density and provides that the compaction shall be in layers not exceeding 150 mm of compacted thickness.

Professor Robin Fell’s evidence

Professor Fell considered the likely mechanism for failure of the levee and concluded that the most likely failure mode was by internal erosion and piping which was likely to be through the embankment around pipes and conduits and behind cutaway walls. He identified the factors most likely to affect a failure as being:
“The degree of compaction of soil – if the soil is poorly compacted there will be permeable zones in which seepage and initiation of erosion can occur.
The erodibility of the soil as measured by laboratory tests, and as observed in the field, and how this is modified by compaction; and the adding of lime or gypsum which inhibits dispersion.
Whether the soil cracks to a depth such that when the flood waters reach the cracked soil, erosion can initiate.”
Professor Fell then went on to consider the question of compaction and referred to the results of the density tests which had been carried out and to which I have earlier referred. He also referred to and relied upon some dynamic cone penetration tests which were done by Gutridge Haskins and Davies in 2003. These tests were referred to in the evidence as “DCP” tests. On the assumption that all such results were accurate, apart from the CETS tests he concluded as follows:
“19        From this it is concluded that:
(a)          Much of the fill in the Charlton Road Levee was compacted to the
Specified 95% density ratio, but a significant amount was not well compacted.
(b)          The fill in the Northern and Southern overlays was not well compacted. About 7% (the red zones) is virtually uncompacted, about 28% (the yellow zones) is poorly to inadequately compacted, and 65% probably satisfactorily compacted. If only the (more reliable) density in place testing is used, only about 15% passes the specification.
(c)          The fill above the pipes and culverts is very poorly compacted. Virtually all falls into the "red" or "yellow" zones. It seems likely much of the fill was not compacted at all or if it was, it was in thick layers with inadequate rolling and moisture content control.
(d)          The backfill behind the retaining walls on the North Brewarrina level is all in the "red" or yellow" zones, and it seems fill behind three of the four walls was not compacted at all.
(e)          The remaining fill in the North Brewarrina Levee is a mixture of well compacted and inadequately compacted soil.”
Having based his results on the tests, other than the CETS tests, he then had to explain those tests. The CETS testing, as I have earlier recounted, showed that in respect of compaction the finished material achieved the desired result. In paragraph 22, Professor Fell suggested that the CETS tests results could be ignored for the following reasons:
“22The question arises why the CETS Testing showed the fill was well compacted, where the later testing shows otherwise. Possible explanations are:
(a)Most of the testing was on the Charlton Levee which Douglas testing showed mostly met specification.
(b)The testing was done on selected, well compacted soil; for example, on the top of layers which were well compacted.
(c)No testing was done on backfill around pipes, culverts and wall backfill.
23. It is thought likely that all three reasons apply.”
Professor Fell provided some questions and answers to those instructing him. He developed what might flow from the failure to achieve the required contractual level of compaction. In answer to a question as to what the potential consequences, if any, of the departure in respect of the compaction relating to the performance of the levee, its safety and integrity, he said the following:
“48 Answer: The levees are much more likely to develop internal erosion and piping problems than if they had been compacted to specification. It must be recognised that it takes only one layer of poorly compacted soil to give a path for seepage and initiation of erosion. There are many such layers in the Northern and Southern levees, and around pipes, culverts and walls, and most likely some layers in the Charlton, North Brewarrina and Tarrion Creek levees.”
Professor Fell then went on to deal with what was necessary to rebuild the levees. In doing so, he recognised that the cost of such work would be substantial. Other persons gave evidence as to the cost of any necessary rework.

Dr Glen Truscott’s evidence

In Dr Truscott’s report he refers to the density testing which was carried out at the conclusion of the contract and during his investigations in 2003. He also refers to the DCP tests. He puts to one side the testing carried out throughout the course of the contract and his ultimate conclusions at paragraph 12 were as follows:
“In my opinion, it is highly probable that one or more of the levees will fall in the event of a flood, for the following reasons:
The density of the material around the culverts and immediately adjacent to the levee retaining walls is so low that the levee is likely to wash out at at. least one of these locations during a flood considerably less than the design flood. This situation is aggravated by the high linear shrinkage results. This matter is considered critical to the security of Brewarrina and remedial works are required urgently.
Generally the density of the material in the overlays on the Southern and Northern Levees is also low and remains about the same as for the levees dumped in the 1970's. The only improvement is the random reduction in linear shrinkage. Hence, most of these levees are no better than the old, dumped levees.
The materials in the Charlton Road and Tarrion Creek Levees are also generally below the required density and have linear shrinkages above 12%. This, together with the low densities in the pavements, means the pavements cannot be relied on to prevent cracking and cracks are likely to extend below the 1 % flood level. These levees will therefore leak and probably fail during floods less than the design flood.
Density testing and the DCP results on North Brewarrina Levee indicate that this is not adequately compacted. Also the linear shrinkage results indicate a significant amount of the levee material has a linear shrinkage greater than 12%. Hence this levee cannot be relied upon to protect North Brewarrina in the event of a significant flood.
The above matters are critical to the safety of the levees and require urgent attention.”

Council’s case on the aspect of compaction

The plaintiff presented three broad bases upon which it attacked the conclusions of Professor Fell and Dr Truscott. These were:
1.It called its own expert, Dr Brian Burman to deal with the assumptions made by Professor Fell and Dr Truscott in their reports.
2.It relied upon the cross examination of those involved in the carrying out of the Barnson’s reports to show that the Barnson tests were conducted improperly and were unreliable.
3.It submitted that in any event the opinions expressed by Professor Fell and Dr Truscott failed to comply with the requirements laid down in the Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 in that their opinions did not describe or elucidate the process by which the logical step between the test data and their ultimate conclusions in respect of the condition of the levees was made.
I will first briefly refer to the points made by Dr Burman in his report before moving to the second of the matters referred to above which became fundamental to the adequacy or reliability of the Barnson test results.
Dr Burman dealt with the compaction of the levees and culverts in separate parts of his reports. In respect of levees the matters to which he addressed himself were as follows:
1.The CETS method of testing was more reliable than the nuclear densonmeter testing adopted by Barnson.
2.The location of the Barnson’s tests. He identified that some of the tests done by Barnson were not in the new levees but in the old levees dating back to 1976 or might arguably be in such old material.
3.The reliability of Barnson’s tests. On this aspect Dr Burman referred to
(a)          calibration of the Troxler nuclear gauge
               (b)          calibration range of the Troxler nuclear gauge
               (c)          field moisture content
               (d)          comparative nuclear and sand replacement tests
               (e)          field procedures
               (f)           DCP correlation
Dr Burman’s ultimate conclusion was that the GHD/Barnson test results were flawed in several significant respects and that those results were further compromised as to their locations to the extent that there was insufficient reliable data on which Professor Fell and Dr Truscott could reasonably have based their far reaching and serious conclusion.
Dr Burman referred to Golder’s testing in August 2003.
Dr Burman analysed them under these headings:
(a)          maximum dry density tests
               (b)          field moisture condition
               (c)          location of the Golder tests
His conclusions showed that the Barnson field density results were not only unreliable, but mostly, if not all, wrong. This together with his earlier matters led him to the view that the expert opinions did not have the appropriate foundation in the results.
In respect of the culverts Dr Burman analysed the field density testing carried out by Barnson and Golder at culverts and he concluded that the opinions had been based upon flawed data.

Barnson’s compaction tests

These tests were carried out under the supervision Mr Newnham a geologist with GHD Pty Ltd (“GHD”). His factual report annexed to his first affidavit sets out the results. The test pits were dug by a Mr Wilson who used a backhoe. It is to be appreciated that the purpose in taking the tests was to take tests at a depth in the levee material in contrast to the progressive testing conducted as the works were constructed and carried out by CETS.
The measurements by a nuclear densonmeter gauge were taken in the field in the excavated pits by Mr Brown from Barnson. In respect of compaction he also did the laboratory testing required to complete the tests. All the tests were collated by Mr Newnham and presented in his report.
The tests which were supervised by Mr Newnham were carried out in April 2003 and in July 2003. This was some fourteen to seventeen months after completion of the project. In the April 2003 testing there were fourteen tests carried out on the northern and southern levee overlays. It will be recalled that these levees were constructed over the existing levees and hence the use of the word “overlays”. In respect of these tests none of them achieved the contractual limit of 95% and the minimum was 74%. In April 2003 there was also a series of tests carried out around the culverts in the northern levee, southern levee and Charlton Road levee. There were ten tests in all, one of which passed the contractual density ratio of 95% and the minimum being 68%.
In July 2003 there were six tests taken in the north Brewarrina levee none of which achieved the contractual specification figure with the lowest being 85%. There was thus no testing in the Tarrion Creek levee. All these results are extraordinarily low and given the other testing, namely, the CETS testing during the course of construction and the Douglas Partners immediately on the conclusion of the work, there is a real question which arises as to the accuracy either of the Barnson tests or those with which they are contrasted. For example, the Douglas Partners test done in April a month after the site was left showed that nine out of ten of the tests passed the specified contraction limit of 95% and the one that failed was only 94% which was well within the order of accuracy expected from such tests.
The other testing with which Barnson was involved was the parallel testing which occurred when Golder carried out testing for the Council in August 2003. Golder carried out eighteen compaction tests and Barnson carried out seven by testing in parallel close to where some of the Golder test pits had been dug. I will return to these in due course but I will first deal with the analysis of the procedures involved in carrying out the April and July tests by Barnson under the supervision of GHD.
The following criticisms of the test procedures adopted in April and July were made:
1.            Use of a backhoe to dig to test depth.
2.            Failure to take standard counts in trenches.
3.            Excavating below probe depth to take a sample.
4.            Failure to identify location of the tests.
5.Calibration of the Troxler machine and its use outside its calibrated range.
6.            Unreliability of laboratory test procedures.
7.Laboratory tests performed outside the moisture limits fixed by standards.
I now turn to each of these matters.

Use of a back hoe to dig to test depth

There is no doubt that a backhoe having a tooth bucket was used to dig to the appropriate test depth during these trials. It also should be noted that the same procedure was used in the Golder Barnson tests which were carried out in August. The relevance of the matter is that there must be no disturbance of the surface material in respect of which the test is conducted by placing the nuclear densonmeter on the surface. Dr Burman noted in his report that the plain bucket is normally used to prepare test sites. Both Dr Burman and Dr Truscott agreed that surface preparation was important. This is so that the gauge sits flat on the ground with no air voids under it which could cause errors in the reading. It is clear that there was preparation of the surface. Without further evidence I do not think that the fact that a back hoe with teeth was used leads to the inference that the surface was not prepared properly, a fact which Mr Brown gave sworn evidence that it was so prepared.

Failure to take standard counts in trenches

Note 3 to the Australian Standard AS 1289.5.8.1 provides that a nuclear densonmeter gauge should not be used within 150 mm of a vertical projection. That note (which appears on page 5 of the Standard) also states that when a gauge is used within 600 mm of a building, trench or other structure, the effects of reflected radiation can be minimised by determining standard counts of each proposed test site prior to each test.
It is plain from the evidence that no standard counts were taken in any of the trenches during the April or July testing. This emerged because Mr Brown was informed of the need to do this when he was conducting the parallel testing in August by someone from Golder.

Doyle Street levee

It seems clear that there is no real question about the structural adequacy of the wall. There are some cracks which are shrinkage cracks in the wall and the witnesses seem to accept that these could be easily repaired by coating with a sealant on the road side of the levee.
Earlier in these reasons I dealt with the appropriateness of the concrete testing and the test results. It is plain that the concrete tests undertaken in the footing in the earlier part of the wall showed two failures where the concrete did not achieve the strength of 25 mpa. These failures were made known to Mr Komp, the Superintendent, and he accepted them and directed the plaintiff to leave the footings as he was of the view that there was a sufficient safety factor in the design for it not to be a problem. This is clearly an acceptance of defective work under s 30.5 of the General Conditions and there has been no demonstration of any loss or suffering as a result.
The Schmidt hammer tests were carried out once the defendant raised a problem in relation to the concrete testing and they were satisfactory. On 24 April 2002 the designer of the wall, Mr Saran, carried out a detailed inspection, reviewed the testing and concluded that the levee wall conformed to the design requirements and therefore was considered structurally acceptable.
The only matter of concern that seems to have been raised by Dr Truscott was the cracking and Mr Saran gave evidence that was likely to have been caused by concrete shrinkage and was not a structural defect. He thought the water ingress would be minimal but Dr Truscott thought that there was a path which should be prevented. In my view the concrete wall is substantially fit for its purpose but the defendant should be allowed some allowance for surface treatment of the cracks to the wall.

Plaintiff’s claim in restitution for total failure of consideration

Having regard to my findings that there has been substantial performance of the contract this claim will not lie. In any event given the fact that the contract provides for:
(a)          Progress payment
(b)          Adjustment on default (clause 46.6)
(c)          Damages (clause 44.1, 44.2 and 44.10)
(d)A schedule of quantities allocation of separate sums for separate parts of the work.
(e)          An express division into two severable portions
the contract is not an entire contract.

Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 (NSW) claims

The further amended cross-claim alleges liability on the part of Beckhaus Civil under s52 of the Trade Practices Act 1974 (Cth) and s42 of the Fair Trading Act 1987 (NSW). In the case of Dennis Beckhaus the cross-claim also alleges accessorial liability in respect of the alleged breaches by the plaintiff. The claims relate to three alleged representations set out in paragraphs 14 and 16 of the further amended cross-claim. They were
(i) Beckhaus Civil had assets worth $2 million;
(ii)Beckhaus Civil had an annual turnover of between $3 million and $6 million; and
(iii)Beckhaus Civil operated a third party accredited quality system.
The first two representations are alleged to have been made orally by Dennis Beckhaus at the post tender meeting on 8 August 2001 and to have been repeated in writing by the minutes of the post tender meeting.
The third representation is alleged to have been made in writing both in the tender submission (page 70 of Exhibit J, the relevant wording is “Beckhaus Civil operates a third party accredited quality system for all projects”) and in the “Resume” of Completed Contracts attached to a fax of 2 August 2001 (page 31 of Exhibit J, the relevant wording is “a third party accredited quality system has been in operation since 1990.”).
The response of the Cross-Defendants to these allegations is that:
(a) The representations were not made in the terms alleged;
(b)No representation that may be established to have been made was misleading or deceptive;
(c)The evidence does not establish any reliance on any representations that may be proved to have been made;
(d)Mr Beckhaus has not been shown to have been knowingly involved in any misleading or deceptive conduct;
(e)No damage has been shown to have been sustained by the Council by reason of any representations that may be found to have been made.
I turn now to consider each of the representations.

Representation as to financial position of Beckhaus Civil

Mr Witherdin was a civil engineer who worked for a company formerly known as PPK Environment & Infrastructure. That company was retained by the Council to coordinate and evaluate tenders for the construction of the Brewarrina levees. Mr Witherdin also recommended a preferred tenderer based on the tender assessment criteria, which had been established for the purpose.
Prior to preparing his evaluation report that was eventually submitted to the Council, Mr Witherdin attended a tender interview on 8 August 2001 at Singleton. Mr Dennis Beckhaus was present. In his affidavit Mr Witherdin gave evidence that Mr Beckhaus said:
“Beckhaus Civil has an annual turnover of between $3 million and $6 million. It does not work off huge overdrafts. It pays accounts within 30 days. It has a current cash surplus of $200,000.00 in the bank and assets worth $2 million.”
A record of the meeting formed part of the contract. The minutes record Mr Dennis Beckhaus of Beckhaus Civil being present and under the heading “Financial Status” there is a listing of the five statements, which Mr Witherdin alleges were made in his affidavit.
Mr Beckhaus’ evidence of the relevant conversation was that in response to a question, “Would you please advise your current financial position” he responded in these terms:
“Our turnover is generally in the area of $3 million but it has been as high as $6 million. We don’t work off huge overdrafts. We pay our accounts within 30 days. We have a current cash surplus of about $200,000.00 in the bank. We have assets worth about $2 million.”
One will notice the clear difference between referring to Beckhaus Civil and Mr Beckhaus’ use of the word “our” or “we”. This arises because there are at least three companies involved in his operation. There is Beckhaus Civil Pty Ltd, the plaintiff in the action, Beckhaus Civil Engineering Pty Ltd and Beckhaus Pastoral Pty Ltd. The first two companies are described by Mr Beckhaus as operational companies for the performance of various contracts and the third is the company which owns the plant and equipment which is hired out to the first two companies. Although I will refer to this in more detail later in general terms it is plain that if Mr Beckhaus was referring to the group of companies then his statements would have been substantially accurate. If they simply referred to the plaintiff, Beckhaus Civil, they were completely inaccurate and misleading. For example, the plaintiff’s total assets for the year ended 30 June 2001 was $713,345.00 and its net assets were $349,677.00. It hardly need be mentioned that it was only Beckhaus Civil that entered into the contract, not the other two companies.
It is also plain that the statement made by Mr Beckhaus as to cash surplus of $200,000.00 and an annual turnover of between $3 million to $6 million was perfectly true in relation to the plaintiff, Beckhaus Civil. It is only the statement of assets worth $2 million that does not apply to the plaintiff, Beckhaus Civil. This difference was eventually taken up with Mr Beckhaus in cross examination at T 288 in these terms:
“Q. When you indicated that the current cash surplus of $200,000 in the bank was in place, you said that because you knew from your own knowledge that there was about that much in the bank?
A.           Yes.
Q.And the balance sheet behind tab 13 would tend to support that, wouldn't it?
A.           It would, yes.
Q.Then going to the first bullet point, that was based on your understanding of the turnover of Beckhaus Civil for the preceding years?
A.           The 200,000 was based on--
Q.           No, sir, I am asking you to look at the first bullet point.
A.           To which?
Q.           The first bullet point, "Annual"?
A.           The first?
Q.           The first bullet point under 7.5.
A.           Oh, sorry. "Annual Turnover", yes.
Q.Again, that was based on your knowledge of the turnover of Beckhaus Civil in the previous years?
A.           Yes.
Q.           Then you see there is reference to assets worth $2 million?
A.           Yes.
Q.           That was a false statement, wasn't it?
A.           False statement, no.
Q.           Beckhaus Civil didn't have assets of $2 million?
A.           No.
Q.           You disagree with me?
A.           Sorry? Yes, they didn't have, Beckhaus Civil didn't, no.
Q.And you were not asked questions at the meeting about other companies, were you?
A.           No.
Q.How can you tell his Honour that the statement as recorded in the minutes is not false?
A.How can I tell him? The statement was made in relation to all the other companies. I mean in a pure sense, it was false.
Q.And do you tell his Honour that that is what you meant in your own mind when you made the statement?
A.           I certainly did.
Q.           But you didn't say it, did you?
A.I didn't say it? I very much doubt whether I was asked these questions.
Q.           Could you answer the question please, Mr Beckhaus?
A.I am beginning to doubt whether I was ever asked these questions.
Q.           And I am asking you to answer the question please?
A.           Sorry, go back again. Where did we get to?
Q.You explained to his Honour, I think it is fair to summarise, that when you said assets worth $2 million, or words to that effect, you were referring not only to Beckhaus Civil?
A.           Correct.
Q.           Other companies?
A.           I was.
Q.You didn't actually refer to those other companies in your discussions on that occasion, did you?
A.           No.”
The version of the conversation put by Mr Beckhaus in his affidavit was put to Mr Witherdin. He stated that he did not recall that conversation and could not recall it either way. He conceded that he may have said it and that he did not recall it given the passage of time. He preferred to rely on the minutes as a basis for his recollection and it will be recalled from the minutes that in the substantive part they make no reference either to “Beckhaus Civil” or to “we” or “our”.
In these circumstances I am prepared to accept that Mr Beckhaus’ reported conversation in his affidavit is correct.
It is to be borne in mind that what Mr Beckhaus was attending on the day in question was a post tender meeting and that the tender had been submitted by the plaintiff, Beckhaus Civil. He was well aware of the relevance of the fact that the assets were held in another company because he structured his affairs that way so as to preserve the assets in case anything happened to the contracting companies. In the context of a meeting for this purpose, namely, considering the tender of the plaintiff, Mr Beckhaus’ reference to “we” and “our” having regard to the circumstances and the particular facts to which he was referring, for example, the turnover and the money in the bank, were clearly directed by him to refer to Beckhaus Civil. It was no doubt understood by those to whom the statements were made in that sense. Plainly, as Mr Beckhaus concedes, the statement was false in relation to the assets. Mr Beckhaus did nothing to suggest to those at the meeting that it was other companies that had assets of this amount and that they would be available to the plaintiff. In the circumstances I am satisfied that the statement made by Mr Beckhaus was intended by him to refer to the plaintiff and that it was false.

Representation as to a third party accredited quality system

I have set out above the relevant representations which were made. Clearly these or at least one of them implies that such a system was in place at the time of making the representations. Mr Beckhaus concedes in his affidavit that the previous third party accredited quality system which was in force in Queensland expired on 23 March 1997. In cross examination Mr Beckhaus conceded that the statement was inaccurate because it did not say, “currently accredited”.
Given the fact that the assessment of the tenderers required amongst other things the various tenderers to be allocated a score out ten for quality control, such a statement would be likely to mislead or deceive Mr McNabb who dealt with quality control issues in relation to the tender.

Causation and reliance upon the representations

Specific evidence was given by Mr Witherdin to whom I have referred about whether or not he would have made the recommendation which he did make to the Council as to the preferred tenderer if he had known the true situation. In respect of financial capacity he said:
“I say that I would not have recommended the acceptance of the Beckhaus Civil tender, particularly in the light of the magnitude of the overstatement of assets. PPK would not recommend a contractor in such a financial position. The low value of the net assets of Beckhaus Civil, in conjunction with its very low tender price, would present a risk regarding the potential insolvency of Beckhaus Civil and a real risk to the completion of the project. In addition it would raise a concern about Beckhaus Civil making spurious variation claims.”
In relation to the representation about an existing third party accredited quality system he gave evidence that it was important in the assessment process.
It is necessary to consider the extent of reliance by Mr Witherdin on the representations and then consider what flows from that in the terms of his report to Council and the Council’s acceptance of the tender.
In respect of quality assurance situation it is plain that Mr McNabb sought and obtained some examples of quality systems that had been employed by the plaintiff on previous projects. In a letter of 2 August 2001 Mr McNabb asked for evidence of the nominated third party accredited quality system as well as typical plans used for other jobs. The response from Mr Beckhaus was to reply, indicating that he would drop off some plans from the current contract and a previous quality plan from their contract at Warren in 1998. He indicated that a job specific quality plan would be developed for the particular project. He made absolutely no mention of and did not provide evidence of the nominated third party accredited quality system.
Clearly the existence of the third party accredited quality system was still a fact which was relied upon in the assessment of the tenders. In discussing the Beckhaus Civil tender Mr Witherdin said the following when referring to their quality control:
“Quality – third party accredited quality system, was previously RTA qualified. Would have a qualified engineer on site. Submitted previous quality procedures for other jobs.”
Clearly Mr Witherdin accepted the statement of the existence of the third party accredited quality system and that became part of his recommendation for the acceptance of the tender.
Mr Witherdin was cross-examined concerning his reliance on representations concerning quality systems and a consideration of that indicates that he still relied upon the existence of a third party quality assurance system. The fact that other scores of various tenderers were close to that of Beckhaus does not detract from the fact of his reliance which, as I say, is also clear from the terms of his report.
I have referred to the evidence given by Mr Witherdin as to the importance which he placed on the financial capacity. Nothing detracted from his view on that and I accept his evidence in this regard that he would not recommend a contractor in such a financial position so far as a low value of the net assets was concerned.
Of course it was not Mr Witherdin who made the decision to accept the tender. That decision was made by the Brewarrina Council. The matter was considered at a meeting of the Council on 25 September 2001. There were eleven members present and it was resolved that the Beckhaus tender be accepted, “As recommended by the consultants PPK Environment and Infrastructure and agreed to by DLWC and DPWS after a thorough review”. There is no evidence to suggest that either the review or recommendation was put before the Council. No evidence was given as to reliance by members of the Council. There was evidence from Mr Walters who put the matter forward to the Council that if PPK had not recommended Beckhaus he would not have recommended them to the Council. He himself did not read the full PPK report but merely noted their ultimate recommendation. In Henville v Walker (2001) 206 CLR 459 it was held that where a contravention of s 52(1) was one of two concurrent causes of a loss that was enough to enable damages to be recovered under s 82. McHugh J at paragraphs 106 to 109 referred to the matter in these terms:
“[106] If the defendant's breach has ‘materially contributed’ to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.
[107] Of particular importance to the present case is the long-standing recognition of the possibility that two or more causes may jointly influence a person to undertake a course of conduct . In separate judgments in Gould v Vaggelas, Wilson and Brennan JJ emphasised that a representation need not be the sole inducement in sustaining the loss. If ‘it plays some part even if only a minor part’, in contributing to the course of action taken -- in that case the formation of a contract -- a causal connection will exist.
[108] This principle has been applied in cases where a complicating factor is the intervention of some act or decision of the plaintiff or a third party that allegedly constitutes a more immediate cause of the loss or damage. Thus, in Medlin v State Government Insurance Commission Deane, Dawson, Toohey and Gaudron JJ said:
‘The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of commonsense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision.’ (Emphasis added.)
[109] Similarly, in respect of claims under s 82, courts have accepted that loss or damage is causally connected to a contravention of the Act if a misrepresentation was one of the causes of the loss or damage sustained by the claimant. As the Full Federal Court pointed out in Como Investments Pty Ltd (In liq) v Yenald Nominees Pty Ltd:
‘The law does not consider cause and effect in mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it had some substantial rather than negligible effect.’”

True it is that no-one from the Council who actually made the decision to award the tender was called to give evidence but it is plain from the minute that there were two matters put forward in favour of the acceptance of that tender. One was the recommendation by PPK and the other was that the investigations be carried out separately. It would seem to me that the recommendation by PPK was a material matter on which the decision was based. As I have found that recommendation was brought about in part as a result of the misleading conduct, causation is established.
So far as damages are concerned in these circumstances where the question was whether the Beckhaus Civil tender should be accepted in contrast to that of the next lowest tenderer who was Sudholz it should be noted that the difference between the two tenders was approximately $1 million. In these circumstances the damages which the Council may recover on its cross-claim would be no greater than the cost of rectification less the unpaid portion of the contract sum including provisional costs items and also less the difference between the contract sum and the amount which would have been paid to Sudholz as the next most likely tenderer.
Having regard to my decision on the cross-claim it is clear that the damages will not anywhere near approach a sufficient sum to demonstrate that the Council has in fact suffered damage.
As has been noted in submissions, the tender by Sudholz was about $1 million higher than that of Beckhaus but having regard to the terms of its tender and the provisional quantities, it would be likely to be at least another $200,000.00 more than those claimed by the plaintiff. There is nothing in the circumstances of this case which would lead one to consider some other order under s 87 rather than damages under s 82.

Conclusion

I have found that in respect of the cross-claim the Council is entitled to damages for two small matters and naturally enough the evidence before me did not address those specific costs. The damages claim was based on estimates on several different bases predicated on substantial success by the Council on its cross-claim. In these circumstances it is probably appropriate that the parties either agree to these additional small amounts of damages or, if necessary, appropriate evidence can be taken.
I direct the parties to bring in short minutes to give effect to the reasons I have expressed in this judgment. If there are any matters requiring further consideration, such as interest and variation 21, the parties can let me have submissions and we can deal with the matters on the next occasion.

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LAST UPDATED: 03/12/2004