| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : BOSCH REXROTH PTY LTD (formerly MANNESMANN REXROTH PTY LTD) -v- AUSTMAN PTY LTD [2003] WADC 114 CORAM : HH JACKSON DCJ HEARD : 28-29 JANUARY 2003 DELIVERED : 11 JUNE 2003 FILE NO/S : CIV 2433 of 2001 BETWEEN : BOSCH REXROTH PTY LTD (formerly MANNESMANN REXROTH PTY LTD) Plaintiff
AND
AUSTMAN PTY LTD
Defendant
Catchwords: Contract - Construction
Legislation: Nil
Result: Judgment for the defendant in the sum of $26,068.30
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Representation:
Counsel:
Plaintiff : Mr N W Marsh
Defendant : Mr A S Stavrianou
Solicitors:
Plaintiff : Julienne Penny & Associates
Defendant : G A Lacerenza & Associates
Case(s) referred to in judgment(s):
Nil
Case(s) also cited:
Nil
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Pleadings 1 The plaintiff company produces, supplies and services hydraulic systems. During 2000, it entered into an agreement to design, produce and supply the defendant with certain hydraulic systems and on or about 3 April 2001, delivered them to the defendant. The pleadings are not easy to understand. The plaintiff says that the agreement between the parties was partly in writing, that writing being constituted by the defendant's order with specifications and the plaintiff's acceptance with invoices and partly implied in order to give business efficacy to the arrangement of supply of the goods. The statement of claim alleges the total charge pursuant to the agreement between the parties was $76,182.70 plus a variation by way of installation of additional materials for the cost of $10,420.55. It is common ground that the defendant paid the plaintiff $60,000 on 19 September 2001. The plaintiff sues for the balance, stated in the claim as $27,513.25, together with interest at 6 per cent as from 29 March 2001 thereon and interest on $60,000 at 6 per cent as from 29 March 2001 to 19 September 2001. 2 The defendant admits it entered into an agreement which it particularises as follows: "(a) Design and supply hydraulic system 1 $69,257.00 (b) Design and supply hydraulic system 2 $5,800.00 $75,057.00 GST $7,505.70 TOTAL $82,562.70 All per enclosed 'Scope for design and supply of two hydraulic systems' it's' technical data, exclusions, options and specification. Flow diagrams to be provided within 1 week C/W field devices to be controlled by others. (c) The delivery date was specified as at the 3rd day of January 2001."
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3 The defendant says the agreement was written and comprised the following documents:
4 The defendant further says that it was an implied and/or express term of the agreement that: "(a) Hydraulic systems would be supplied to the defendants designated deliver place on or before the 3rd January 2001 being Perth, Western Australia. (b) That the hydraulic systems agreed to be supplied would be complete in all respects, with all attachments, hoses, fittings and rotary joints." 5 The defendant says that the plaintiff, in breach of its obligations under the agreement, delivered the hydraulic systems three months late causing loss and damage particularised as: "5(a) i. Rotor joints not supplied $3,077.80 ii. Hoses and fittings not supplied $10,052.31 iii. Power pack wrongly painted $374.00 TOTAL: $13,504.11 (b) Due to late delivery of the hydraulic systems the defendant was unable to assemble and commission the hydraulic systems in Perth and had to do so on site at 'Onslow' this incurring further cost and losses.
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The particulars being as follows: $/day GST Total Site Engineer for 21 days Site support engineer $1,100.00 10% $25,410.00 5 day week $720.00 10% $11,880.00 Site establishment and tools 7 day week $250.00 10% $5,775.00 Site car 7 day week $45.00 10% $1,039.50 Accommodation 7 day week $75.00 10% $1,732.50 Engineer on site to oversee Remedial work (2 days) $1,100.00 10% $2,420.00 Total cost $48,257.00 (c) The power units and hydraulic systems which were supplied by the Plaintiffs also required remedial work due to the Plaintiffs failure to properly assemble and supply the system in working order these are the particularised as follows:- i. Main power pack was overheating; ii. The hydraulic systems did not hold pressure (mobile power packs could not produce enough pressure - (200 bar); iii. The pressure gauges were not all in the one unit; iv. Main power packs were leaking around the motor mounting; v. Power pack No. 2 had faulty oil level switch." 6 The defendant seeks to set off the sum of $27,513.25 against the counterclaim which it makes for its losses in and due to the late delivery of the plant and equipment. The counterclaim is for the sums of $13,504.11 for losses for systems delivered incomplete and $65,808.60 for late delivery losses, together with damages for remedial work necessitated by improper assembly, costs and interest. It seems the
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defendant anticipated a liquidated damages claim from the client, but that that was never made. 7 In opening, Mr Stavrianou agreed that the required delivery date was 3 January 2001 and the actual delivery date 3 April 2001. 8 He also agreed with the quantum, but not liability, for the hoses and fittings supplied and installed the subject of par 5(a)(ii) of the statement of defence, $10,052.31. It is agreed, in other words, that $10,052.31 is a reasonable charge for the hoses and fittings. The plaintiff also concedes both quantum and liability for the power pack wrongly painted, $374, par 5(a)(iii). 9 The quantum of the cost of a site car, $45 per day claimed in par 5(b), is agreed. 10 The remedial work claimed in par 5(c)(i) and par 5(c)(ii) is admitted to have been necessary and agreed to have been performed by the plaintiff.
Issues 11 The plaintiff's case is that by three different agreements, it agreed to design, produce and supply to the defendant certain power units for the hydraulic system of a salt excavator or reclaimer, the first involving one power unit, the second involving another power unit and the third involving three power units. Various tender documents and orders are involved. The dispute involves the last of these. It provided for the power units to be supplied on 3 January 2001, but they were not supplied until 3 April 2001. The plaintiff's position is that the agreement did not include supply of rotor joints, or hoses and fittings. However, the plaintiff accepts that the painting of the power unit had to be remedied and that $374 is a reasonable charge therefor. These issues are the subject of cl 5(a)(i), cl 5(a)(ii) and cl 5(a)(iii) of the defence. 12 The plaintiff disputes the claims made in par 5(c)(i) and par 5(c)(ii). It says it attended on-site without charge and rectified the main power pack which was overheating and the pressure problem. 13 As to other issues raised by the defence, the plaintiff says that its late delivery did not cause loss to the defendant and, in any event, disputes the quantum of the counterclaim as being unreasonable.
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Evidence
14 Just as the pleadings are not easy to follow, the evidence, in a number of respects, was unsatisfactory, incomplete and difficult to follow.
Mr A K Taylor 15 Mr Taylor, the plaintiff's application sales engineer, first discussed the salt reclaimer with Mr Kuhn of the defendant company in late 1999 or early 2000. Various parts of the machine required hydraulics. Over time, the plaintiff tendered successfully for the first and second of the three agreements. 16 For the defendant, Mr Stavrianou objected to evidence relating to the first two agreements and the tendering of Exhibit 1 to Exhibit 6 as being irrelevant, neither pleaded nor part of the pleaded contractual agreement. However, I allowed the evidence. I further consider the question below. 17 In February 2000, the plaintiff quoted in writing for the levelling power unit, Exhibit 1. 18 The quotation is for $58,000 to manufacture and supply: "1 only 75 litre 5.5 kW industrial power unit complete with necessary valving and ancillary equipment as specified in the attached Scope of Supply. Inclusive of the supply only of two 63.5 mm Bore x 200 mm Stroke Hydraulic Cylinders. ... Exclusions Manuals Supply Hydraulic oil and spillage thereof. Electrical installation and control equipment other than that specified on the attached Scope of Supply Installation labour and materials On site commissioning The above may be included, but would be additional to the quoted price."
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19 Exhibit 1 does not attach a "Scope of Supply" document, however. Following further discussions and requests, further information was obtained from the defendant, involving references to a document described as "Caterpillar Industrial Products 350 Track System Specifications", Exhibit 2, documents admitted in evidence as Exhibit 3, and a further document described as "Caterpillar Industrial Products 375 Track System Specifications", Exhibit 4.
20 In July 2000, the plaintiff quoted for "the manufacture and supply of ": "1 only 400 litre 110 kW industrial power unit complete with necessary valving and ancillary equipment as specified in the attached Scope of Supply." 21 The exclusions were listed as: "Manuals Supply Hydraulic oil and spillage thereof. Electrical installation and control equipment other than that specified on the attached Scope of Supply Installation labour and materials On site commissioning Comparitor cards for controlling even speeds of both tracks. Hydraulic Cylinders and LVDT. Laser or other similar levelling control system. Tachometer drives and fitting to motor or gearbox. The above may be included, but would be additional to the quoted price." 22 The "Scope of Supply" document attached lists various items from the plaintiff's supply catalogue. Item 14 to item 17 referring to hose kit, hose assembly and suction line kit relate, it seems, to items included within the manufactured power unit.
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23 The covering letter said, inter alia:
"Please find quotation for the manufacture of 1 only power unit consisting of: - Base frame, Painted to our specification three. Electric Motor 4 Pole 110 kW Bell Housing and Couplings 2 x A4VG 250 Closed Loop Transmission Pumps 1 x A 10VSO 18 Open loop Auxiliary Pump (Cylinders) Reservoir (400 Litres) and accessories Painted to our specification three. Electronic Driver cards and card holders to drive pumps on and off stroke. Black and white control valves for cylinder control Oil Cooler incorporating 3Phase 4 Pole EM Hot Oil flushing valves for closed loop transmission Plus additional valving and accessories as detailed within the scope of supply included with quotation. Pricing includes Packaging and shipping to Your Nominated destination within Perth Metropolitan Area (W.A.). Selection of equipment is based around your information as supplied via facsimile on your letterhead dated 11-7-2000 Rev 1. Exclusions to this project are shown and are not limited to the items as listed on page three of formal quotation, marked exclusions." 24 These papers are Exhibit 5. Apparently that quotation was then the subject of further discussions and another quotation was submitted with different specification by the plaintiff to the defendant at a lower price of $69,257, Exhibit 6. 25 The exclusions were varied to read:
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Installation labour and materials (To be quoted separately). On site commissioning (To be quoted separately). Comparitor cards for controlling even speeds of both tracks (Still awaiting pricing for cards and sensors). Hydraulic Cylinders and LVDT. Laser or other similar levelling control system. Tachometer drives and fitting to motors or gearbox. The above may be included, but would be additional to the quoted price." 26 The documents otherwise appear to be in the same form. 27 On 2 August 2000, the defendant faxed to the plaintiff a document, Exhibit 7, reading, inter alia: "Please supply the following: Item no Quantity Particulars Price 1 1 Design and supply hydraulic system 1 69,257.- 2 1 Design and supply hydraulic system 2 5,800.- All per enclosed 'Scope of design and supply two hydraulic systems' its technical data, Exclusions, Options and Specifications _______ 75,057.- GST 7,505.70 TOTAL $82,562.70" 28 Design then followed. A preliminary circuit schematic, Exhibit 8, was prepared. The hydraulic power unit essentially comprised motors and cylinders supplied by the defendant, a power unit supplied by the plaintiff and interconnecting hoses and fittings. The plaintiff says these interconnecting hoses and fittings were to be supplied by the defendant.
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After an arrangement drawing showing the layout of the power unit had been agreed, manufacture took place. The relevant unit was delivered to the site in late April. 29 Mr Taylor said he visited the site at that time. The salt reclaimer was still being assembled. He saw that certain work had not been completed. 30 The defendant requested a variation to the contract to have ten counterbalance valves installed. Mr Taylor said he had received a request for the extra variation work to be done in a telephone call from Mr Kuhn for the defendant. Mr Kuhn asked that the plaintiff attend the site, fit the tube work, adaptors and counterbalance and carry out the rectification work. Pipe work was required to mount the valves to the cylinders. 31 Mr Kuhn informed the plaintiff that the major power unit was overheating. 32 The plaintiff supplied the materials and labour on-site at Onslow. The plaintiff changed pumps and valving to rectify a problem with the hydraulic systems not holding pressure and also rectified the overheating problem, all without charge. 33 On 22 May 2001, the plaintiff rendered an invoice to the defendant for ten dual counterbalance valves in the sum of $2,708.20, Exhibit 9. On 13 June 2001, an invoice was rendered for the necessary hydraulic hoses and fittings in the sum of $7,712.35, Exhibit 10. 34 Another invoice from the plaintiff to the defendant, now Exhibit 11, also dated 13 June 2001 for hydraulic hoses and fittings but in the sum of $8,622.35, was shown to Mr Taylor but he was unable to offer any explanation in respect to it. Cross-examined, Mr Taylor was unable to comment on the reasonableness or otherwise of these charges. 35 Mr Taylor agreed that he had received from the defendant, on 1 August 2000, a document, Exhibit 12, headed "Onslow Solar Salt Field Reclaimer Scope for Design and Supply Two Hydraulic Systems", together with a note from Mr Kuhn of the defendant company asking him to peruse it and to let him know if it was "O.K.". The document reads: "Design and supply two hydraulic systems complete, inclusive drawings and two sets of manuals for our Onslow Solar Salt Field Reclaimer. The systems are to comply in full with below listed specifications and technical data. Your non-conforming note dated 31/07/00 is accepted:
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Technical Data: 1. Two crawlers which come with hydraulic motors. Attached to this system are two hydraulic cylinders equipped with LDVT and following data: Force = 150 kN, Stroke = 500 mm, Velocity = 10 mm/s and cylinder with following data: Force 25 kN, Stroke = 50 mm, Velocity = 20 mm/s Technical data for the crawler drives: • Reclaimer in middle of stockpile
• Transfer speed 0.06 m/s, Torque around the vertical axis 550 kNm, Power required 8 kW
• Reclaimer half way to card of stockpile
• Transfer speed 0.12 m/s, Torque around the vertical axis 272 kNm, Power required 19 kW
• Reclaimer at end of stockpile
• Transfer speed 0.7 m/s, Torque around the vertical axis Zero kNm, power required 55 kW
• Reclaimer relocation
• Transfer speed 1.2 m/s, Torque around the vertical axis Zero kNm, power required 90 kW
2. Two levelling cylinders equipped with LDVT and following data: 200 kN, Stroke = 350 mm, Velocity = 20 mm/s Exclusions: • Supply of cylinders and LDVT • Supply of hydraulic oil • Field devices for levelling
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Options: • Installation in Perth, yet to be quoted • Commissioning on site, @ hourly rates plus expenses • Comparitor card for speed control, yet to be quoted • Tachometer, yet to be quoted. Austman is also investigating the supply with Caterpillar Specification and additional Data: • Operational procedure 2 pages A4 • Salt Stockpile Reclaim Operation PO-2330 1 page A4 • Reclaimer travel (sketch) 1 page A4 • Comet Loads CLO1 & CLO2 2 pages A4 • Salt Reclaimer Travel Power vs Speed 1 page A4 • Drawing 407 Hydraulic system No2 2 pages A4 • Cat 375 Track System 1 page A4 • Specifications • Part 1 Salt Preparation 6 pages A4 • Part 2 Mechanical Works 18 pages A4 • Part 3 Hydraulic System 6 pages A4 • Part 5 Surface preparation and Painting 10 pages A4 • Part 6 manuals 6 pages A4 • Part 7 Inspection, Testing, Commissioning & QA 11 pages A4" 36 The plaintiff had a copy of a document headed "Standard Specifications Part II - Section G", Exhibit 12A.
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37 On the same day, he faxed a reply, Exhibit 13, advising that it was, and seeking an order. He then received the purchase order, Exhibit 7. Mr Taylor said the pricing had been included in the company's earlier quotation.
38 Notwithstanding the use in Exhibit 12 of the phrase "Design and supply two hydraulic systems complete", Mr Taylor was adamant that that was not what the plaintiff had been asked and agreed to supply. The plaintiff's agreement was to design and supply two hydraulic power units or power packs as part of the salt reclaimer. Those units are not the whole of the hydraulics system for the salt reclaimer. He said that Exhibit 5 and Exhibit 6 referred to their quoting to design and supply a power unit. As they were not supplying the system, the contract did not require them to supply the hoses connecting the power unit to the motors being supplied by the defendant. Nor was the plaintiff required to supply the hoses and pipe required to connect the power unit to the cylinders. 39 Mr Taylor said that whether such items were included in the design and supply of a hydraulic system varied "from system to system". It was rare for spares and parts necessary for installation and commissioning to be quoted. 40 He agreed that Mr Kuhn and he had discussed a swivel elbow being required by the defendant after the award of the power unit contract. Mr Taylor said he looked at the defendant's engineer's design sketch of the swivel elbow on the jockey wheel which operates off the levelling power unit. However, the jockey wheel is not supplied by the plaintiff, nor part of the power unit. When Mr Kuhn asked for swivel elbows, Mr Taylor said he told him they were outside the scope of supply but purchased some and showed Mr Kuhn. It then emerged that, in fact, Mr Kuhn wanted a rotary joint. To assist Mr Kuhn, Mr Taylor obtained a quotation for rotary joints, he thought the price quoted being about $1,300 to $1,350 each. The swivel elbows were neither supplied to the defendant nor charged for. Nor did the plaintiff supply rotary joints. The defendant counterclaims for two such joints at a cost of $3,077.80. 41 Mr Taylor agreed that after late delivery of the power pack, Mr Kuhn had advised by fax that "any costs associated with late delivery" would be charged to the plaintiff, Exhibit 14. Subsequently, the defendant sent to the plaintiff's solicitors details of such claims together with a chronology, Exhibit 15.
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42 He agreed, under cross-examination, that Exhibit 12 and Exhibit 13 form part of, but, in his view, not the whole of, the contractual arrangements between the parties. That, in his view, also included previous quotations. He could not say whether any of the moneys claimed by the plaintiff related to the small or levelling power unit.
43 He did not agree with the statements made by the plaintiff's accountant, Mr P G Sulway, in an affidavit in support of an application for summary judgment made 28 November 2000, Exhibit 16, at par 4, that: "On 2 August 2000 the Plaintiff entered into an agreement with the Defendant under which: (a) The Plaintiff promised to design and supply the Defendant with certain Hydraulic Systems, and (b) The Defendant promised to pay to the Plaintiff the amount of $82,652.70 plus any additional costs. Annexed hereto and marked with the letter 'A' are copies of the Defendant's order with specifications and the Plaintiff's acceptance." 44 The annexure marked "A" exhibits copies of the defendant's purchase order with specifications and the plaintiff's acceptance. It does not include the quotations of 25 July 2000 and 26 July 2000, Exhibit 5 and Exhibit 6. 45 Mr Taylor was not able to say whether, when he received Exhibit 7, the purchase order, a copy of Exhibit 12, the scope for design and supply, was attached. However, he acknowledged that he had received it as part of the draft. He also agreed that the system could not operate without connecting hydraulic joints and hoses and fittings. 46 On 16 January 2001, the defendant sent a fax, Exhibit 17, which read: "SUBJECT: Onslow Salt Mechanical Reclaimer, P/O No 1624, Contract Variation No 1 Auxiliary power packs/Level transmitter Confirming the following: 1. Supply and install level transmitter with system No 2 $2,625.- + 262.5 = 2,887.50
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47 This was for power packs for a different hydraulic system, which were supplied. 48 Re-examined, Mr Taylor said that: "... there can be a number of exclusions from the design and supply and in many cases we can be asked to design a system, the complete system, and yet supply parts thereof. For example, we can be asked to design based around - we need actuator information such as the motors or cylinders that may be used. We need that information to design the system so that we make sure that we get our flow rates, speeds, torques, pressures, that sort of thing correct. So we need that information, yet we are not always supplying it. Whilst we are designing the system, we're not always supplying a complete system." 49 Whilst not pretending to expertise in pricing issues, his view, when pressed, was that the defendant's counterclaim for $1,100 per day for site engineering supervision seemed excessive. However, he agreed he had no basis for the opinion, which I disregard.
Mr P W Byatt 50 Mr P W Byatt, the state manager of the plaintiff, is concerned mainly in the design and supply of hydraulic systems and components. 51 After being alerted that the account in this matter had not been paid by the defendant, he and Mr Taylor met Mr Kuhn. Mr Kuhn advised that the defendant was having difficulty collecting funds owed to it "so he was having problems paying us" and also said that there had been costs to the defendant because of the late delivery which he had not yet quantified, but which would be offset against the plaintiff. The offset, or counterclaim, was quantified later by the defendant.
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Mr Kuhn
52 Mr Kuhn, a professional engineer, is a director of the defendant company. It designs and constructs bulk handling systems. It was the prime contractor to Onslow Salt Pty Ltd, which was establishing a bulk salt operation, to design and construct a salt reclaimer. The plaintiff sub-contracted to it. Mr Kuhn said he dealt only with Mr Taylor. Mr Kuhn prepared Exhibit 12. Specifications for the work were taken from the main contract, Exhibit 12A. 53 Mr Kuhn wrote the word "Draft" on the document, intending to give the plaintiff an opportunity to comment "if there was anything wrong or otherwise, simply because this reflects in my view all the correspondence and all the verbal discussions we had prior to this document". 54 He received Exhibit 13 in reply, so he wrote a purchase order, Exhibit 7, the following day and sent it to the plaintiff, attaching the "Scope for design and supply" document, Exhibit 12. It shows installation and commissioning as options to the contract, that is, the price is not included in the contract price but the purchaser may require the supplier to do the work at the relevant price. 55 Other firms were sub-contracted to supply the motors and cylinders which were, therefore, dealt with as exclusions from the plaintiff's contract to supply complete hydraulics systems. 56 He expected the plaintiff "to design and supply two hydraulic systems complete". By reference to Exhibit 8, he described "a complete hydraulic system". Hoses and fittings are not expressly mentioned because they are included in a hydraulic system. Nor is a rotary joint for the same reason. There had been no discussion of these hoses and fittings or the use of the word complete before the documentation was done. The hoses and cylinders, for which $10,052.31 is claimed, connect the power pack to the five cylinders. This was done by a sub-contractor to get the work done. He said he had discussed the issue of hydraulic hoses and fittings and valve counterbalance cartridges with the plaintiff's tradesman on-site, and briefly with Mr Taylor. The invoices, Exhibit 9, Exhibit 10 and Exhibit 11, relate to those. 57 He had also, later, raised with the plaintiff the supply of rotary joints required on power pack number 2 to supply the hydraulics to the cylinders. Mr Taylor recommended that. They were purchased from Atkins Carlyle for $3,077.80, Exhibit 18. Without rotary joints, the
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hydraulic system will not operate. They are part of a complete hydraulic system. 58 In December 2000, the defendant ordered the three auxiliary "power packs", Exhibit 17. 59 Mr Kuhn produced a construction schedule for the head contract between the defendant and Onslow Salt Pty Ltd dated 15 March 2000. It includes the critical path line which indicates that delays of items on the critical path will extend the construction period and also shows the cash flow curve, Exhibit 19 and Exhibit 20. In the present case, the plaintiff had delivered some five weeks after the critical path deadline, so that other activities had to be extended. The contract called for completion on 1 July, but the defendant had not vacated the site before 21 July. The plaintiff's delay was the only reason for this. 60 In respect of the costs claimed to arise from that delay, Mr Kuhn said the claim of $1,100 per day for 21 days was for his own attendance on-site at Onslow for the days between 1 July and 21 July charged at the rate charged by the defendant to Onslow Salt Pty Ltd for the commissioning engineer under the head contract, Exhibit 22. During that period, the defendant was still commissioning the unit. He oversaw the plaintiff's remedial work. Some work planned to be carried out in Perth had to be done in Onslow, at extra cost. He agreed, under cross-examination, that whilst he had been in Onslow during the 21 days claimed for, he had not been occupied solely with installation of the hydraulic system. Rather, the claim was simply for delay, causing 21 days extra on-site costs. 61 The claim for a site support engineer is calculated at $90 per hour plus GST for 40 hours per week for 15 days, based on the head contract rate for a principal design engineer, Exhibit 22. Mr V Chaika, working in the Perth office, was the person concerned. 62 There is also a claim for site establishment and tools at $250 per day, seven days per week. The site car fee is agreed. 63 The accommodation charge is the subject of Exhibit 21, being one chalet for 20 nights, one for 13 nights and one for eight nights - in total, two chalets for the period from 1 July to 21 July, $3,075.
Mr I D Gooding 64 Mr I D Gooding, construction engineer and contracts and procurement manager, gave evidence of an expert opinion nature, called
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by the defendant. His report dated 27 August 2002 is Exhibit 23. The relevant parts of his report are as follows: "Design and Supply Hydraulic System In placing an order on an expert vendor to provide a complete and operationally functional system, the prime contractor relies on the duty of care of that vendor to provide a system that is: • complete in all respects; • functions in the operating environment for which it's specified; and • is robust in its design, such that when installed it can be confidently operated without the prospect of constant failure or downtime for maintenance. Unless expressly excluded by the vendor the 'design and supply of a hydraulic system' would include all of the above requirement and the documents, data, and installation spares and parts necessary for the installation and commissioning of the equipment by the construction company. If the commissioning of the equipment is a complex process involving the tuning or balancing of operational control systems in order to ensure correct functionality of the system, any costs associated with provision of specialist commissioning personnel is normally provided for at a rate or separate cost in the Order. If the vendor is expected to install the equipment this would normally be provided for by the instruction to ... 'design, supply and construct or install' the equipment. Meaning that the construction or installation is an entirely separate activity from design and supply. In my view and experience a requirement to construct or install a piece of equipment or system equipment does not indicate any requirement to 'supply'. The constructor or installer is only required to provide the necessary labour and equipment to carry out the installation. A simple test of this is illustrated by the fact that given the constructor is not the designer of the equipment, it would have no way of knowing what it was that it would need to supply. Therefore the requirement in the industry to 'design and supply
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a system' is taken as just that, including all supply necessary to complete and install the system, unless expressly provided for otherwise. Costs and Damages Arising From Untimely Supply In arriving at an understanding of what costs and damages might reasonably flow for the failure of a vendor to supply equipment it is necessary to have some understanding of construction processes and the criticality of that supply in the constructor achieving completion of the Project. In construction terms there is such a thing as a 'Critical Path' being those essential elements of the project to be constructed in sequence in the shortest time span necessary to complete the Project. There sub elements of supply in a construction program that may not initially be considered Critical Path items if they are supplied in a timely manner and which could be installed in parallel to critical path construction so as to have no impact on the duration of construction activities. However if the supply of these items becomes delayed and they are critical to the ultimate functionality of the Project they could then move onto the critical path and if the delay is substantial lead to a delay in completion. Without having undertaken a detailed review of the project I can only provide a view from principal, but it is reasonable to make the point that a piece of major materials handling equipment cannot be completed and handed over to a Client without the inclusion of a functioning hydraulic system. It is alleged that in this case the provision of the hydraulic system in question was subject to a substantial delay of 3 months. It is unlikely that such a delay could be absorbed into the Critical Path of the Project or that the installation of the system could have been undertaken in parallel to other Critical Path activities. It is most likely that the installation added time to the overall completion of the Project placing the Construction at risk of liquidated damages under the head contract and leading to prolonged site resources and possibly remobilization of resources. While the cost of carrying out the installation of the hydraulic equipment would have already been provided for by the
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constructor and would not necessarily change due to a delay in supply, the constructor is entitled to recover the reasonable costs of extended site supervisory, management and facilities resources occasioned by the delayed supply including any remobilization costs or applied liquidated damages. These costs would be primarily linked to the duration necessary to install and commission the hydraulic system, which would have otherwise been undertaken in parallel with other Critical Path activities. In addition the constructor may have incurred addition direct costs due to delay in supply such as one off transport costs or additional overtime to achieve the shortest installation duration possible. All these costs are potentially claimable as damages due to late supply. However any costs claimed must be reasonable and provable as having actually been incurred and I pass no judgment as to the veracity or otherwise of the costs claimed." 65 He confirmed that the system depicted in Exhibit 8 requires a connection of the three sub-systems by a series of hoses and piping systems, and also requires rotary joints. Given the order the subject of Exhibit 7, the vendor is ordering "all the power packs, piping and hosing systems and connection joints, etcetera" to be supplied. It is the supplier of the system, not those of the component materials, who provides and connects the interconnecting elements. He confirmed, in principle, Mr Kuhn's evidence about the critical path of construction processes and, in money terms, the reasonableness of the remuneration claimed for the supervising and site engineers. 66 Under cross-examination, Mr Gooding was shown Exhibit 12. Shown Exhibit 6, he said he understood that installation was not included in the agreement. He would not expect the supplier of the motors to supply the interconnecting systems. These are in the domain of the hydraulics supplier. The documentation suggests that Exhibit 8 and Exhibit 12 are related.
Mr V Czajka 67 Mr V Czajka, a mechanical engineer employed by the defendant, was office supervisor during the contract concerned. He described the site
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support engineer's duties as being to do the "engineering backup, say like doing some calculations and things ... doing some designing work, faxing to people and instructing them". During July 2000, that was his full-time work. He was not concerned with the hydraulics in that period. He outlined the work he was doing. I do not understand it to be involved with the matters specifically raised in this trial, save in the commissioning phase as part of that process.
Conclusions 68 Mr Marsh relies on Exhibit 1, Exhibit 5 and Exhibit 6 as documenting the plaintiff's claim. He argues that the exclusions of "installation labour and materials" are in each and re-written in Exhibit 12, so that the parties' agreement developed out of this course of conduct. By installation, he argues, is meant not merely the labour and minor materials required in the process of installation, but the hoses, fittings and, if the defendant is accepted on the point, rotary joints, which make up the connecting elements between the power units, motors and cylinders. In order to accurately construe the ultimate contract documentation, he says, regard must be had to the earlier course of negotiations reflected in earlier documents. 69 Mr Stavrianou argues that the contractual documents comprise Exhibit 7, Exhibit 12 and Exhibit 13. Insofar as the agreement was in writing, that writing does not include, he says, the pre-contractual documents, Exhibit 5 and Exhibit 6, which it is not necessary to consider in order to give meaning to Exhibit 7. 70 Mr Stavrianou argues that the contract, being one to design and supply a system, it is logical that the contract involved inclusion of the necessary items to make the system work, including hoses, fittings and rotary joints, as Mr Gooding said. The express words encompass that. I agree. In my view, the various agreements between the parties are each separate and rely on their own documentation. I accept the defendant's submissions as to the meaning and content of the third agreement reached in August 2000. The contract price of $82,562.70 less the amount previously paid, $60,000, and the amount agreed to be deducted to rectify painting, $374, gives a balance owed to the plaintiff before considering the defence and the rest of the counterclaim of $22,188.70. 71 Mr Stavrianou argues that the variations the subject of Exhibit 9, Exhibit 10 and Exhibit 11 are not proved, either as to their reasonableness,
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price, the hours taken, or how the invoices were calculated. Given my view as to the contractual terms, those claims cannot be sustained. 72 The evidence, essentially, also establishes the counterclaim and its quantification, save for the items the subject of par 5 on the counterclaim as to which I accept the plaintiff's evidence. As to the balance, I accept Mr Kuhn's evidence thereon. 73 Against the sum of $22,188.70 referred to above, I set off the amount of $48,257, giving a balance owing to the defendant of $26,068.30 74 As I understand the evidence, the counterclaim for $13,504.11 is dealt with in allowing the claim in the amount I have and the original counterclaim for liquidated damages is not pursued.
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