BM Culley and Associates Pty Ltd v Email Metals Pty Ltd t/a Union Steel

[1997] QCA 64

IN THE COURT OF APPEAL	[1997] QCA 064
SUPREME COURT OF QUEENSLAND
Brisbane

Appeal No. 277 of 1995

Plaint No. 2458 of 1994

[B.M. Culley & Assoc P/L v. Email Metals P/L]

BETWEEN:

B.M. CULLEY & ASSOCIATES PTY LTD
ACN 005 250 555

(Defendant) Appellant

AND:

EMAIL METALS PTY LTD
ACN 004 574 681
(trading as UNION STEEL)

(Plaintiff) Respondent

Macrossan CJ.
de Jersey J.

Dowsett J.

Judgment delivered 4 April 1997.

Separate concurring reasons of Macrossan CJ and Dowsett J; de Jersey J agreeing with the reasons of Dowsett J.

APPEAL DISMISSED WITH COSTS.

CATCHWORDS:	AGENCY - appeal from decision of District Court against finding of actual and ostensible authority - variation of authority to act by conduct of the parties
CONTRACT - construction and interpretation of terms - whether contract objectively construed discloses existence of actual authority
Counsel:	D R Gore QC with him P N Hackett for the appellant. P A Keane QC with him P E Hack for the respondent.
Solicitors:	Halletts for the appellant. Clayton Utz for the respondent.
Hearing date:	3  September 1996.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 277 of 1995

Plaint No. 2458 of 1994

Brisbane

Before Macrossan CJ

de Jersey J

Dowsett J

[B.M. Culley & Assoc P/ L v. Email Metals Pty Ltd]

BETWEEN:

B.M. CULLEY & ASSOCIATES PTY LTD ACN 005 250

555

(Defendant) Appellant

AND:

EMAIL METALS PTY LTD ACN 004 574 681 (trading as Union Steel)

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE CHIEF JUSTICE

Judgment delivered 4 April 1997

Dowsett J. has made a sufficient summary of the facts and issues in this matter. I shall refrain from making unnecessary additions and so am able to state relatively briefly my reasons for agreeing with his conclusions for the disposal of the appeal.

The respondent (then Union Steel - "Union") had indicated a willingness to supply only to the account of the appellant ("Culley") and insisted firmly on the importance to it of this arrangement. Also, Union's authority, as I would conclude, initially was to supply on Culley's order.

In fact, Union was responsible for the form of its authorisation being stated in this fashion but once it was agreed that supply was to be to Culley's account then the limitation on the authority to order would have constituted some protection to Culley.

The limit, if that is what it effectively was, of $76,410 originally stated for the extent of the supply agreed between Union and Culley is of no particular relevance for the issues that now arise since that limit was by clear agreement between Union and Culley exceeded in the supply which eventuated.

A relevant later development occurred because of the pressures introduced into the situation resulting from delays in the progress of the works. The head subcontractor (ICS) then commenced to place orders directly. However, Culley was fully aware of this and raised no objection.

Culley also knew that Union in fact was complying with requests for supply directly communicated by ICS.

In my view, the matter of liability is to be resolved in objective fashion by considering what a reasonable person would have thought viewing the situation, knowing both the matters previously agreed between Union and Culley and the further matters that transpired as known to both those parties: cf. Taylor v. Johnson (1983) 151 C.L.R. 422 at 428- 429. The proper conclusion is that Culley, being under pressure with the scheduling of the works was, for its own purposes, allowing a short cut to hasten delivery and was content that direct orders, for which it would be liable, should be placed by ICS. Objectively considered, it would not be a reasonable conclusion to construe the circumstances as indicating that Union was prepared to abandon completely its previous insistence that supply should be to Culley's account. Union's reasons for its attitude were too firmly expressed for this to be accepted as a likely construction of events. It is true that Union would have been pleased to have the business advantage of the further orders but it was for its part under no scheduling pressures.

Thus it should be concluded that there was a new situation agreed between Culley and Union arising out of their conduct and it amounted to a variation of their original arrangements. Under the varied arrangement, direct orders placed by ICS were to be to Culley's account.

Once the contractual arrangement between Union and Culley is regarded as effectively varied by conduct in the way described, the precise legal category to which the effect should be attributed does not have to be identified in one exclusive fashion. Liability can simply be regarded as arising under the terms of the arrangement agreed between the contracting parties, namely that if Union supplied on orders lodged by ICS, then Culley would pay. Liability would then be regarded as arising out of conformity of the acts done in performance (the supply by Union) with the contractual promise to pay in that event. Strictly, this approach need not involve considering the authority of ICS, whether actual or ostensible, to place orders.

Alternatively, the same result would be reached by viewing the conduct of Culley as a holding out of the authority of ICS to place orders on Culley's behalf. That is the same facts as before could be regarded as establishing the ostensible authority of ICS regardless once again of the actual authority conferred on ICS by Culley.

The appeal should be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane

Appeal No. 277 of 1995

Plaint No. 2458 of 1994

Before Macrossan CJ.

de Jersey J. Dowsett J.

[B.M. Culley & Assoc P/L v. Email Metals P/L]

BETWEEN:

B.M. CULLEY & ASSOCIATES PTY LTD
ACN 005 250 555

(Defendant) Appellant

AND:

EMAIL METALS PTY LTD
ACN 004 574 681
(trading as UNION STEEL)

(Plaintiff) Respondent

REASONS FOR JUDGMENT - de JERSEY J.

Judgment delivered 4 April 1997

For the reasons given by Dowsett J, I agree that the appeal should be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane

Appeal No. 277 of 1995

Plaint No. 2458 of 1994

Before Macrossan CJ.

de Jersey J. Dowsett J.

[B.M. Culley & Assoc P/L v. Email Metals P/L]

BETWEEN:

B.M. CULLEY & ASSOCIATES PTY LTD
ACN 005 250 555

(Defendant) Appellant

AND:

EMAIL METALS PTY LTD
ACN 004 574 681
(trading as UNION STEEL)

(Plaintiff) Respondent

REASONS FOR JUDGMENT - DOWSETT J.

Judgment delivered 4 April 1997

The appellant entered into an agreement with Messrs I. J. McDonald & Sons to construct a

warehouse on land at Gilberton owned by that firm and sub-contracted the design, documentation,

supply, fabrication, installation and supervision work associated with the construction to Inverse

Construction Systems Ltd ("ICS"). The terms of the sub-contract are to be found in a letter dated

28 April 1994 from the appellant to ICS, which is part of ex. 17. A copy of this letter was sent by

the appellant to the respondent under cover of a letter dated 13 September 1994 in which it was

described as, "a copy of the contractual arrangement between ourselves and ICS." As far as I am

aware, it has at all material times been common ground in this action that such is the case. I will

refer to that agreement as the "ICS agreement". Clause 2.02 of the agreement provided:

"On behalf of Inverse Construction Systems Ltd B. M. Culley & Associates shall

enter into sub-contracts related to the ICS Ltd works for: ...".

Thereafter were listed numerous supply, delivery and installation functions.

Clause 2.02 also provided:
"All of these sub-contracts shall be subject to the following conditions:

(a)         Establishment of sub-contract sums, agreement of progress claims, variations or other contractual claims and supervision and coordination of the sub-contract works shall be the responsibility of ICS Ltd who shall certify or advise accordingly to B.M. Culley & Associates, who will then process in accordance with the sub-contracts.

(b)        ...".

Clause 2.03 provided:

"B.M. Culley have commissioned ICS Ltd by the execution of this letter, for the
fixed lump sum of $751,500 to provide the following services:

(a)         Design and document the complete ICS Ltd works including guaranteeing suitability for purpose and providing structural engineer certification during construction ...

(b)        Co-ordinate and supervise the various design, documentation, supply, fabrication, installation and the like activities to ensure smooth implementation, with due consideration to non ICS works.

(c)         Guarantee that the overall cost of the ICS Ltd works to B.M. Culley shall not exceed the fixed lump sum of $751,500 for any reason other than a client instigated variation to the scope of works described in Annexure 1; in which case a mutually agreeable amount shall be determined for the variation. Any over-run on this amount shall be a debt owing by ICS Ltd to B.M. Culley & Associates.

(d)        supply, fabrication and installation of all bored piers, footings, pier caps, columns, tubelok components, ... and the like required to complete the ICS Ltd work."

The agreement then again provided that the appellant, on behalf of ICS, would enter into

sub-contracts with various suppliers and fabricators "as described in cl. 2.02 above".

As to payment, the agreement provided:

"The fixed lump sum of $751,500 includes the $50,000 royalty and shall be paid as

follows:

• Amounts certified by ICS Ltd for payment to the various sub-contractors described in cl.2.03(b) above shall be paid by B.M. Culley direct to the various subcontractors on behalf of ICS Ltd.

• The difference between the $751,500 fixed lump sum and the amounts paid to the various sub-contractors on ICS Ltd's behalf shall be paid by B.M. Culley direct to ICS Ltd.

• In the event that the amount certified by ICS Ltd for payment to the various sub-contractors together with any amounts claimed by the various sub- contractors from B.M. Culley, together with any amounts previously paid to ICS Ltd exceed the $751,500 fixed lump sum then ICS Ltd agree that B.M. Culley's responsibility for payment is only up to the $751,500 fixed lump sum. ICS Ltd agree that they are responsible for any amount due or claimed for the ICS Ltd works in excess of the $751,500."

It can be seen that although ICS agreed to perform the work on behalf of the appellant, the

appellant nonetheless agreed to enter into sub-contracts with suppliers and others on behalf of ICS.

Why this curious structure should have been adopted is not clear. The respondent refused to

extend credit to ICS. Perhaps it was anticipated that other trade suppliers and contractors would

have similar reservations.

ICS first approached the respondent in April 1994, or perhaps earlier, with a view to

securing a supply of steel for the project. The respondent subsequently submitted a tender. In early

May, the appellant submitted ex. 11, an order for the delivery of steel, which contemplated the

appellant, on behalf of ICS, entering into a sub-contract with the respondent for the supply of steel

to a value of $76,410. The respondent indicated that it was not willing to trade with the appellant on

that basis. (See ex. 8.) On 11 May 1994, the appellant submitted site order No. 1002 (ex. 13),

which was said to be submitted "On behalf of Inverse Construction Systems". The respondent again

declined to trade on that basis. The order was re-submitted with the offending words deleted and

was accepted. On 13 May 1994, the appellant advised the respondent by memorandum as follows:

"We confirm that orders have been placed by B.M. Culley & Associates for supply
of steelwork, as required by Inverse Construction Systems details and schedules.
All delivery dockets and invoices are to be addressed to B.M. Culley & Associates
...".

The memorandum prescribed the procedure for processing claims for payment, indicating

that the approval of ICS would be required prior to payment. (See ex. 14.)

On 20 May 1994, site order No. 1004 was submitted. This was a small order. On 3 June

1994, site order No. 1010 was submitted for goods totalling $124,734.20. This order was marked

"On behalf of Inverse Constructions." The respondent refused to accept it. The order was re-

submitted with the offending words deleted.

Thereafter, steel was supplied pursuant to other oral orders placed by ICS. Subsequently,

the witness Kidd prepared a list of such orders and sent it to Mr Bartlett, the project manager for

the appellant. A copy was also sent to Mr Shepherd on behalf of ICS. This document, which is

part of ex. 23, lists orders for steel with invoice numbers against the various entries. The first page

also bears the words, "We need an order number for these deliveries." The second page bears the

words, "Please forward O/N for these items." On 19 July 1994, site order No. 1020 was issued by

the appellant. That order covered the items in question. The defence admitted that it was for goods

totalling $124,734.20, although this does not seem to coincide with the amounts shown on the

attached documents.

After that date, the respondent continued to honour oral orders from ICS, sending copies of

delivery dockets by fax to both the appellant and ICS. Invoices were sent at the end of each month,

either by fax or by delivery, to the appellant. No complaint was every received about these

invoices. On 13 September 1994, the appellant wrote to the respondent enclosing a copy of its

letter to ICS dated 28 April 1994. Both letters comprise ex. 17. The former letter commenced:

"We wish to inform you of the current situation regarding payments for work done on the above project. It appears that Inverse Construction Systems Ltd (ICS) are defaulting or intend defaulting on their contractual obligations to pay the ICS works contractors and ourselves for work done on their behalf."

It was then asserted that, "The cost of the ICS works has significantly exceeded the

$751,500 fixed lump sum contracted between ICS and ourselves." It was said that ICS attributed

the overrun to "overdesign" by its structural consultant. The appellant paid for the steel which was

the subject of the four site orders, but denied liability to pay for the later deliveries. The respondent

sued the appellant for $130,082.15 and interest, being the amount allegedly owing.

The amended defence raised two issues:- firstly, whether ICS had ordered steel on behalf of

the appellant; and secondly, whether the absence of a written order was, per se, a defence to the

respondent's claim. The appellant argued that the respondent could not rely upon any claim of actual

or ostensible agency as between the appellant and ICS because that had not been expressly

pleaded. Whatever the merits of that point, the appellant expressly abandoned it in argument before us. It also abandoned reliance upon the absence of written orders as a ground of defence, although

it continued to submit that the matter had evidentiary significance with respect to the principal issue

on the appeal which was the question of actual or ostensible authority.

The learned Chief Judge of District Courts found that there was both actual and ostensible

authority and gave judgment for the respondent. On appeal, these findings were attacked. A

secondary issue arose concerning goods which, it was said, had not been ordered by ICS, but by a

number of other persons or organisations, including Iron Dog Fabricators and Kenro Steel. It initially

appeared that these orders had not been proven at trial, but Mr Keane Q.C. for the respondent

pointed out that the appellant had admitted in its defence that the steel which was the subject of the

plaintiff's claim had been ordered by ICS. See para. 6(b). In the course of evidence Mr Bartlett,

the appellant's project manager, also conceded that such steel had found its way into the fabric of

the warehouse. See record p.194 ll.50-60. ICS had retained various fabricators to perform work

for it in connection with the warehouse project. I infer that ICS ordered steel for them to fabricate or

authorised such orders, and it was delivered to them. After they had performed their functions, the

fabricated product was sent to the site. See record p.118 ll. 45-60 and p. 168 ll. 5-10. In light of

the admissions that ICS placed all of the relevant orders and that all of the material ordered ended

up in the warehouse structure, there is no relevant issue arising out of this matter.

That leaves for consideration only the question of agency. I should record that the learned

trial Judge preferred the evidence of Messrs Gillespie and Kidd to that of Messrs Shepherd and

Bartlett. More particularly, his Honour found that Shepherd had placed orders for steel in his

capacity as an employee of ICS and that both ICS and the appellant knew that orders were being

placed by Shepherd without written site orders from the appellant. His Honour found that Bartlett

was, "kept fully informed of what was transpiring between ICS and the plaintiff."

One other aspect of the evidence requires particular comment. Exhibit 24 is site order No.

1020 which was placed after the delivery of the steel in question. If steel ordered by ICS without a

written order from the appellant was subsequently included in an ex post facto order, that would suggest strongly that ICS was authorised to order such steel on behalf of the appellant. Mr Bartlett

said that when he issued site order 1020, he was under the impression that it was for steel to be

delivered in the future. It is very difficult to accept that assertion in light of the references to invoice

numbers and the statements, "We need an order number for these deliveries" and "Please forward

O/N for these items", all of which suggested that the goods had already been delivered. I believe

that the learned trial Judge was dealing with this matter at record pp. 24-5, although his Honour

referred to ex. 25, which is a request for prices of various items. The context makes it clear that the

reference to ex. 25 was erroneous, and that his Honour was referring to ex. 24.

The finding of actual authority rests upon the proper construction of the ICS agreement and

the subsequent conduct of the appellant. The appellant submitted that the agreement contemplated

the appellant's entering into sub-contracts with suppliers, which contracts ICS was to administer on

behalf of the appellant, and that it did not authorise ICS to enter into such sub-contracts on the

appellant's behalf. Taking the introductory part of cl. 2.02 in isolation, this view has some attraction,

however the agreement must be read as a whole. Condition (a) at the end of the clause

contemplates that ICS will establish the "sub-contract sums", which I can only construe as authority

to fix the prices. It cannot have been expected that the sub-contractors would agree to ICS being

some kind of arbitrator. It was obviously intended that ICS would negotiate with the sub-

contractors as to price. This suggests authority to contract. The other powers or responsibilities to

be conferred on ICS pursuant to this paragraph included agreement of progress claims, variations or

other contractual claims and supervision and co-ordination of the work. In light of the clear intention

that ICS assume responsibility for design, supply and construction, it is difficult to avoid the

conclusion that it was to have authority to order the necessary steel. Its responsibility for completing

the work within the fixed lump sum price and liability for any cost overrun re-inforce this view. I

consider that the intention of the parties to the ICS agreement was that the appellant would assume

initial responsibility for the costs incurred by ICS in ensuring the supply of steel but that it was to be

left to ICS to order whatever was required.

Even if this was not precisely what was intended, it cannot be doubted that after the

respondent's attitude to ICS became known, ICS and the appellant proceeded in that way. I infer

that to the extent necessary, the ICS agreement was implicitly amended by agreement. Conduct

from which I so infer includes:-

(a)         the appellant's attempts to order on behalf of ICS and to enter into a "sub-contract"

with the respondent;

(b)        amendment of the site orders after the respondent's objections on two occasions;

(c)         the ex post facto delivery of site order No. 1020;

(d)        the appellant was aware that the respondent would not trade with ICS, that ICS

was obtaining steel for the project from the respondent and that it (the appellant)

was receiving invoices for such deliveries, and did not object; and

(e)         the appellant had told the respondent that it would be necessary that ICS approve

all claims for payment.

The only probable explanation of these matter is that the appellant and ICS were dealing

with each other and with the respondent on the basis of the ICS agreement, amended as necessary

to reflect the respondent's unwillingness to deal with ICS.

The respondent needed only to prove actual authority in ICS to place orders on behalf of

the appellant. It did so by proving an agreement between the parties which constituted such

authority and conduct by the parties clearly consistent with their acting in reliance upon it. I infer that

the appellant had authorised ICS to place orders on its behalf with the respondent to the extent

necessary to obtain the steel required for the construction of the warehouse. I do not construe the

ICS agreement as limiting that authority to the ordering of goods up to any fixed amount. Indeed, it

contemplated the possibility that ICS might order goods in excess of the total lump sum price and

provided for the distribution of liability as between the parties in that event.

In these circumstances it is not strictly necessary to deal with the question of ostensible authority. However, the appellant's conduct with respect to the fourth site order, No. 1020 and the respondent's conduct, apparently in reliance thereon, would have been sufficient to justify a finding

of ostensible authority for relevant purposes had actual authority not been proven. The appeal

should be dismissed with costs.