Command Energy Pty Ltd v Nauru Phosphate Royalties Trust - [2003] VSC 261

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 6425 of 1997

COMMAND ENERGY PTY LTD	Plaintiff
v
NAURU PHOSPHATE ROYALTIES TRUST AND BETWEEN:	Defendant
NAURU PHOSPHATE ROYALTIES TRUST	Plaintiff by Counterclaim
v
COMMAND ENERGY PTY LTD	Defendant by Counterclaim

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JUDGE:	HARPER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	5-8, 12-15,19-22, 25-28 FEBRUARY, 4-7, 12-14, 19-21, 25-27 MARCH, 3-5, 8-11, 15-18, 22-23 APRIL, 3-7, 11-13, 18-19 JUNE 2002
DATE OF JUDGMENT:	17 JULY 2003
CASE MAY BE CITED AS:	COMMAND ENERGY v NAURU PHOSPHATE ROYALTIES TRUST
MEDIUM NEUTRAL CITATION:	[2003] VSC 261

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CONTRACT – Contracts for installation and maintenance of equipment in a major city building – Alleged failure to maintain equipment – Alleged falsified reports – Repudiation – Whether breach of essential term – Alleged repeated breaches - Whether wrongful termination.

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APPEARANCES:	Counsel	Solicitors
For Command Energy	Mr G Golvan QC with Mr I Williams	Blake Dawson Waldron
For Nauru Phosphate Royalties Trust	Mr W Lally QC with Mr V Morfuni SC	Clayton Utz
For Sogelease Australia	Mr D Denton SC with Mr R Short	Phillips Fox

Introduction............................................................................................................................... 1
The Contractual Background................................................................................................. 9
(a)....... Maintenance Agreement................................................................................................ 10
(b)....... Right to Terminate......................................................................................................... 12
(c)....... CERA.............................................................................................................................. 13
The Pleadings.......................................................................................................................... 20
(a)....... Alleged Express Terms of Maintenance Agreement..................................................... 21
(b)....... Alleged Implied Terms in Maintenance Agreement..................................................... 22
(c)....... Alleged Breach of Maintenance Agreement.................................................................. 25
(d)...... Allegations Concerning Sogelease................................................................................. 25
(e)....... Allegations Concerning the Ziton System..................................................................... 32
(f)....... Summary of Pleadings................................................................................................... 34
(g)....... The Trust’s Position in July/August 1997..................................................................... 36
The Meinhardt Audits........................................................................................................... 40
(a)....... June 1994 Report............................................................................................................ 41
(b)....... November 1995 Report.................................................................................................. 43
(c)....... August 1997 Audit Reports............................................................................................ 45
(i)........ Building Services General Audit Report August 1997...................................... 46
(ii)....... Essential Services Audit Report August 1997.................................................... 50
(d)...... Responses to the 1997 Audits......................................................................................... 53
Withdrawal of Allegations of Falsified Reports and Failure to Maintain.................. 55
Fire Dampers........................................................................................................................... 56
(a)....... What are Fire Dampers?................................................................................................ 56
(b)....... Number and Location in Nauru House......................................................................... 59
(c)....... What were Command’s Obligations ?........................................................................... 62
(i)........ The Maintenance Agreement............................................................................. 62
(ii)....... Australian Standard 1851 Part 6........................................................................ 64
(d)...... The Parties’ contentions about Command’s fire damper performance........................ 68
(e)....... Did Command maintain the fire dampers in Nauru House before the 1997 Meinhardt audit?........................................................................................................................................ 70
(f)....... Command’s representations about what it would do in response to the 1997 Meinhardt audit........................................................................................................................................ 73
(g)....... The “gentleman’s agreement”....................................................................................... 86
(h)...... How did Command respond to the Meinhardt audits’ criticisms about fire dampers? 96
(i)........ The instructions given to Mr Butler................................................................... 96
(ii)....... The creation of the fire damper location schedule........................................... 102
(iii)...... What had been achieved by the time the fire damper location schedule had been completed?....................................................................................................... 104
(a).... A comparison between what Mr Butler said he was doing and the documentary evidence.......................................................................................................................................................... 104
(b).... Meinhardt’s findings in 1998.................................................................................................. 109
(c).... What was found when the fire dampers were serviced in 1999 ?............................. 111
(d)... Conclusion.................................................................................................................................... 113
(i)........ What are the consequences of a failure to maintain the fire dampers?....................... 114
(j)........ Did Command falsely represent that the fire dampers had been maintained when they had not?...................................................................................................................................... 121
(i)........ Introduction..................................................................................................... 121
(ii)....... What Mr Chelberg told the Trust about Command’s work on the fire dampers 125
(iii)...... Allegations that Command’s documentation was part of an attempt to deceive 136
A...... Introduction.......................................................................................................................... 136
B...... Mr Butler’s evidence about “signing off” the fire damper location schedule........... 141
C...... The evidence of Messrs Hughes and Griffiths................................................................ 148
D..... The intervention of Mr Fernando..................................................................................... 152
(iv)..... Statements made in documents submitted by Command in November and December 1997................................................................................................................... 159
(v)...... Did Command carry out its alleged intention to service the fire dampers in early 1998 ?.......................................................................................................................... 168
(vi)..... The significance of fire dampers in the context of the contractual relationship. 176
(k)....... Maintenance Records................................................................................................... 179
(l)........ Fire Dampers – conclusion........................................................................................... 180
Allegations Concerning Other Items of Equipment..................................................... 181
(a)....... Basement 2 Main Switch Room Batteries..................................................................... 181
(b)....... Fire Services................................................................................................................. 185
(c)....... Chillers......................................................................................................................... 190
(d)...... Boilers........................................................................................................................... 200
(e)....... Cooling Towers and Water Analysis........................................................................... 211
(i)........ Australian/New Zealand Standard 3666.2: 1995............................................ 216
(ii)....... Health Department of Victoria Guidelines...................................................... 217
(iii)...... Condition of the Cooling Towers..................................................................... 220
(a).... Meinhardt’s Findings................................................................................................................ 220
(b).... Command’s Response.............................................................................................................. 223
(iv)..... Water Analysis................................................................................................. 226
(a).... Testing and cleaning by Nalco Australia Pty Ltd........................................................... 227
(b).... What was found after Command left the building ?..................................................... 235
(f)....... Failure to Clean Fans.................................................................................................... 246
(g)....... Failure to Service Duct Work....................................................................................... 255
(h)...... Emergency and Exit Lighting...................................................................................... 257
(i)........ Over Pressurisation of Sprinkler System..................................................................... 260
(j)........ Switchboard Air Circuit Breakers................................................................................ 263
Maintenance Records and Preventative Maintenance.................................................. 265
(a)....... MP5.............................................................................................................................. 265
(b)....... As Built Drawings........................................................................................................ 267
(c)....... Command’s BVQI Certification................................................................................... 267
(d)...... Cooling Tower Maintenance Schedules/Records....................................................... 268
(e)....... Emergency Lighting and Exit Sign Records................................................................ 273
Security System.................................................................................................................... 275
(a)....... Introduction................................................................................................................. 275
(b)....... The pleadings............................................................................................................... 285
(c)....... The Command letters................................................................................................... 290
(d)...... Is there a claim in tort?................................................................................................. 292
(e)....... Is there a claim in contract?.......................................................................................... 292
(f)....... Did the system installed conform with that agreed ?.................................................. 296
(g)....... Command’s Project Management................................................................................ 300
(h)...... Representations and Warranties.................................................................................. 305
(i)........ Loss and Damage......................................................................................................... 308
Law of Repudiation............................................................................................................. 309
(a)....... Fraudulent or dishonest conduct................................................................................. 311
(b)....... Breach of essential terms.............................................................................................. 322
(c)....... Repeated breaches........................................................................................................ 325
(d)...... Conclusion................................................................................................................... 331

HIS HONOUR:

Introduction

The management of high-rise commercial (and doubtless also residential) buildings requires sophisticated and multi-faceted skills. The plaintiff, Command Energy Pty Limited ("Command"), holds and held itself out as having them in relation to "the maintenance and operation services … in respect of the equipment within the site known as Nauru House situate at 80 Collins Street, Melbourne Victoria".[1] On or about 6 January 1993, it entered into an agreement ("the maintenance agreement") with the defendant, Nauru Phosphate Royalties Trust ("the Trust") by which it was required to bring to bear on the Trust's behalf skills of that kind. The Trust, a body corporate created according to the laws of the Republic of Nauru, is the owner of Nauru House which, after having been four years under construction, was opened in 1977. It immediately became a Melbourne icon, its 54 floors occupying a dominant position in the eastern end of the city's central business district.
[1] Command’s Further amended statement of claim filed 25 January 2002, paragraph 3

As part of its other arrangements for the administration of Nauru House, a managing agent or building manager (the terms appear to be interchangeable) had been appointed. The holder of this office was, immediately before 1 April 1992, Geo M. Hume Pty Ltd and thereafter (by an agreement of that date) a company called Gardner & Lang Holdings Pty Ltd (shortened, in all relevant printed material, to "Gardner + Lang"). It reported (and continues to report) directly to the Trust on all aspects of the functioning of the building. Sometime in 1992, Gardner + Lang was approached by an emissary for Command (Mr John Griffiths, who later gave evidence for the Trust) with a proposal that the latter assume responsibility for "the ongoing maintenance of Nauru House".[2] The approach bore fruit. A meeting was held on 5 May 1992. The eventual result was not only the maintenance agreement of 6 January 1993, but also an agreement, expressly said to be collateral to it, made on the same day. Both agreements were reduced to writing. That which is collateral to the maintenance agreement is entitled "Capital Expenditure and Replacement Agreement" and has since commonly been referred to by the parties as "the CERA". The full title of the maintenance agreement is "Equipment Operation and Comprehensive Planned Maintenance Agreement". Because 6 January 1993 post-dated the day upon which Command assumed responsibility for provision of the relevant services, the latter date (12 October 1992) is stated in Schedule B of the maintenance agreement to be the day on which the 15 year term of the maintenance agreement commenced. For a fixed lump sum fee of $1,140,000 per annum, or $95,000 per month, Command assumed responsibility for "the total maintenance and operation of the equipment at Nauru House".[3] What this involved is described in more detail elsewhere in the agreement and later in this judgment. For the present it is sufficient to note that, as a matter of fact if not as a matter of right or duty, during business hours Command manned the front desk, and the control room, of the building.
[2]Witness statement of John Griffiths, paragraph 4 (NT.115 at CB.20468)
[3]Maintenance agreement, schedule A, clause A1 (CM.003 at CB.17934)

Fifteen years from 12 October 1992 will not expire until 12 October 2007. But each of the maintenance agreement and the CERA are now at an end. In the early morning of Monday 19 January 1998, the Trust barred entry to Command employees reporting for work in the usual way. With no advance warning to Command's Melbourne office, the Trust physically prevented Command from any further performance of its contractually-designated role at Nauru House. The Trust maintains that Command, by its failure to meet its contractual obligations, forced its hand. Command denies that that is so. It instituted legal proceedings in which it now seeks to vindicate that denial.

The writ itself was issued as early as 28 July 1997, over five months before the events of January 1998. Initially, the complaint was that the Trust had (on 1 July 1997) improperly circumscribed the responsibilities undertaken by Command. In particular, the Trust had relieved Command of its duties – of reception and otherwise – at the front desk, and of its role in the control room. Following the complete lock out of Command in January 1998, however, the relief sought by it included injunctions that, if granted, would have put Command back on the job with the totality of its responsibilities restored. That hope has now been abandoned. Now, Command seeks (a) declarations, (b) payment of what it claims is the monthly fee to which, until October 2007, it is entitled, (c) payment also of an amount of about $173,000 "due for … specified duties and entitlements and additional services performed by [it] and invoiced by it to the [Trust] in accordance with the maintenance agreement"[4] and (d) certain other relief, including damages. Of the declarations included in the prayer for relief, that which bears most directly upon the principal issue between the parties is a declaration that the Trust was not entitled to terminate the maintenance agreement. Indeed, Command's case is relatively straightforward. According to paragraph 25 of the further amended statement of claim, there has been no repudiation of the maintenance agreement by Command, and no refusal to carry out its obligations under that agreement. Accordingly, the Trust was not entitled to terminate the relationship. Because it has wrongfully done so, however, Command has suffered loss and damage.[5]
[4]Further amended statement of claim, paragraph 48
[5]Ibid, paragraph 27

The pleadings have been refined and refined again since the first statement of claim was issued. The further amended statement of claim, after pleading the making of the maintenance agreement, records (in a reflection of schedule A to the maintenance agreement) those, or some of those, of its terms that are relevant to this dispute. The first is that Command "would provide the total services for the maintenance and operation of the equipment at Nauru House".[6]
[6]Ibid, paragraph 4

A description of that equipment is to be found in clause A1.1 of schedule A, and a list of specific items is to be found in schedule D. They provide an insight into the sophisticated, complicated and in a sense delicate creature that is the modern high-rise building. It is by no means easy to keep it functioning as a congenial place in which to be: neither too hot nor too cold, with reliable lifts, lighting and power, easy of access and yet secure from predators, free from health hazards like the legionella bacterium, and safe from fire. One requires, among other things, heating, ventilation and air-conditioning; and by the maintenance agreement, Command was made responsible for the operation, maintenance and performance "of all air-conditioning and ventilation equipment installed on site … [including] boilers, chillers, air handling units … and all associated auxiliaries and controls to satisfy statutory requirements." In addition, Command was by the maintenance agreement made "responsible for all water supply from the customer's side of the mains connection and drainage to the boundary of the site [and] the equipment to be serviced includes domestic cold water and domestic hot water supply and sump pumps, including pumps, tanks, valves, fittings, fixtures, taps and associated equipment [and] all gas supply and reticulation from the customer's side of the gas meter within the site."[7]
[7]All the quotations in this and the following paragraph of the judgment are taken from schedule A, clause A1.1 of the maintenance agreement (CM.003 at CB.17934)

The supply of electrical power was also included under the Command umbrella. It was by the maintenance agreement "responsible for all electricity supply from the customer's side of the electricity meter within the site [including] all main switchboards and electrical cabinets, transformers, batteries up to the breaker of each tenant's equipment and to the breaker of any other equipment." Command's responsibility under this head extended also to the emergency power supply system, the emergency lighting system, the lighting protection systems and the automatic doors. At the same time Command was "responsible for the minimisation of energy consumption whilst maintaining the performance levels specified [elsewhere] in [the agreement, and whilst] maximising plant operation during … building hours." The fire and security systems, and smoke control, were also the responsibility of Command, as were the lifts, environmental hygiene and the computerised maintenance management systems.

It is plain enough from all this, even if it were not plain enough without it, that specialist equipment is required if Nauru House is to function as it should. Command accepts that this is so. In its further amended statement of claim, Command pleads, in effect, that under the maintenance agreement it undertook to ensure that this equipment was maintained in full operational order. It also undertook responsibility for the computers which both directly helped to operate, and also collected and collated information about, that equipment. The efficient use of energy was also, Command alleges, its responsibility.[8]
[8]Further amended statement of claim, paragraph 4. In this paragraph, Command lists the individual items which, it alleges, together constitute "the total services for the maintenance and operation of the equipment at Nauru House".

Rather than seeking to minimise the duties it was required to discharge, Command by paragraph 4 of its pleading acknowledges their extensive scope. As the party alleging a failure by Command to meet its obligations under the maintenance agreement, one might have expected the Trust to admit this part of the further amended statement of claim. Instead, it admits only the execution of the agreement, while otherwise denying that which paragraph 4 asserts.

Be that as it may, the case emphasises some important points about the responsibilities assumed by Command. It is one thing to maintain equipment which has been newly manufactured and installed. It is another when that equipment is at or near the end of its useful life. It is one thing to maintain equipment owned and housed by the customer. It is another thing to purchase the equipment, place it in someone else's building, and then ensure that it works in and for that building in accordance with the building owner's requirements.

For its part, the Trust was required by schedule B of the maintenance agreement to provide Command with (among other things) an office, a workshop, a storeroom and a meal room – together with light, power and telephone. All this was to be free of charge. In addition, all available operating, instruction and maintenance manuals were to be made available, as were building services operational schedules, duty cycles and on/off schedules. It is important to record here (because the maintenance of records is a live issue in this case) that the Trust was further obliged to allow Command access to "as built" and "work as executed" drawings.

Certain items were, as provided by schedule D of the maintenance agreement, specifically excluded from the services which Command was obliged to deliver. For relevant purposes, these included cleaning, general building maintenance, and inaccessible parts, cables and equipment.

All this is consistent with the allegation in paragraph 3 of the further amended statement of claim that by the maintenance agreement Command assumed responsibility for "maintenance and operation services … in respect of the equipment within ... Nauru House". It assumed no responsibility for the building itself. There were, perhaps, points at which the line of demarcation became – or might without care have become – somewhat vague. For example, there are in Nauru House fire inhibiting items known as “fire dampers”. They are to be found within the air conditioning duct work at the point where it penetrates fire rated structures; but it is clear (albeit only because in clause A3(b) of schedule A, the maintenance agreement makes special provisions in relation to them) that these fell within Command's jurisdiction. Likewise, the maintenance agreement specifically provided that Command would maintain and service all automatic doors.[9] The inference, one might think, is that doors which operated manually would fall under someone else's care.
[9]Maintenance agreement, schedule A, clause A1.1(h)(CM.003 at CB.17935)

This inference is of course strengthened by the obviously relevant dichotomy between on the one hand the building which is Nauru House, and on the other the equipment in it. It is the latter, not the former, that – by the maintenance agreement - Command was engaged to maintain. It is into the former that, not being readily classified as equipment, manually operated doors naturally fall. It follows, so the argument runs, that manually operated doors were not included within Command’s sphere of responsibility. Yet under one classification, to which I shall return, fire doors were placed under Gardner + Lang, while smoke doors were said to be the responsibility of Command. The lesson is that it is, at times, necessary to take care to ensure that the wrong entity is not saddled with responsibilities it does not have, with the result that it is blamed for faults it did not cause. Similarly, references to applicable legislation and standards must be read as references to legislation and standards which relate to the responsibilities of the entity to which they are alleged to apply. It is one thing to say that an applicable standard has not been met. It is quite another to say who was responsible for not meeting it.

In 1992, the Trust was faced with a building which was showing signs of age. The 15 years which had elapsed since it was opened had seen huge strides in such things as computer technology and environmental science (for example, the effect of ozone depleting gases) and, doubtless, in the discipline of building management. Conscious of this, the Trust commissioned a firm of engineers (Bassett Consulting Engineers Pty Ltd) to report on the steps required if Nauru House were to retain its status as a desirable office address. On 10 February, the Trust received the resultant report. It is headed "Review and Master Plan for Building Services". It reviewed "mechanical, electrical, fire, security, hydraulics and building automation systems" but not lift services.[10] It recommended maintenance and rectification works to be carried out in two stages. The total estimated cost of stage 1 was $3,434,500. An additional estimate of between $450,000 and $1,200,000 was given for stage 2. It was predicted that, if upgraded in accordance with the report's recommendations, the engineering systems of the building would have a further life of 20 years.[11]
[10]Letter dated 28 February 1992 from Bassett Consulting Engineers to the then managing agent, Geo. M. Hume Pty Ltd (CM.001 at CB.01658)
[11]Introduction to the report, at p.3 (CM.001 at CB.01661)

A section under the heading "Current Standards" is relevant for present purposes. It reads as follows:

"One important aspect of this report is the review of existing systems in relation to current standards. This is of special significance in relation to mechanical services where the progressive adoption, since the 1970's of more stringent regulations in relation to the fire safety of ventilation systems has radically affected the design of air-conditioning systems in multi-storey buildings.
In some instances solutions are proposed that fully comply with current regulations. In other instances, where the cost of such an approach would be excessive, solutions that comply with the intent of new regulations are proposed."

Given the total cost of the works envisaged, this advice is perhaps not surprising. Nor is the fact that the consultants found much need for improvement. While the hydraulic services were assessed as basically very sound and with a further life of 20 years, the then extant building automation system was, for example, "beyond the end of its useful life and should be replaced as soon as possible".[12] Thus the consultant proposed the replacement of the "Honeywell Delta 2000 Building Monitoring System", which had been installed as part of the original building fit-out and was "in rather poor condition"[13], by the "Barber Colman Network 8000 Building Automation System" at an estimated cost for stage 1 of $460,000.
[12]Report of Bassett Consulting Engineers dated 28 February 1992, s.6.3.1 (CM.001 at CB.01692)
[13] Ibid at CB.01691

When, on 1 April 1992, Geo. M. Hume Pty Ltd was replaced by Gardner + Lang as managing agents of Nauru House, Mr Geoffrey Hughes – an employee of Gardner + Lang – was appointed as building manager. In paragraph 2 of his witness statement he describes his principal duties as involving:

"… management of … Nauru House …, which I have done for the last nine years. In my role as building manager, I regularly reported to the Nauru Trust Property Department personnel, and where required to the Secretary of the Trust. I reported on matters such as the status of maintenance of the building and in the areas of dispute with the contractors carrying out works for the Trust in or in connection with Nauru House."

Throughout Command's contractual relationship with the Trust, Mr Hughes was the first point of contact between the Trust and Command on day to day issues concerning the building. It was therefore important that the dealings between Mr Hughes and the employees of Command not be bedevilled by personal antagonisms. Unfortunately, however, these developed; and did so to such a degree that, by the second half of 1997, relations had sunk below the level at which the issues could be satisfactorily addressed. Indeed, in May 1995 steps had been taken to terminate the relationship.[14] These were not pursued to an ultimate conclusion; but they reflected a state of things which necessarily had a deleterious effect on the building's proper maintenance.
[14]See CM.062, CM.063 and CM.066

This issue was addressed by Hinds Blunden (Vic) Pty Ltd (“Hinds Blunden”) in a report to the Trust dated 21 July 1997. That firm had been engaged pursuant to a memorandum of understanding between it, the Trust and Gardner + Lang[15] to provide “professional expertise in the administration of the Command contract and resolution of issues” identified in an appendix to that memorandum. The engineer with particular responsibility for preparing the report was Mr Jeffrey Duck. In his opinion, the Trust, by moving to terminate the relationship some years before, had placed Command in a position from which it was “continually looking over [its] shoulder and waiting for a further attempt to terminate [its] contract.” This, the report continues, “obviously detracts from [the] performance of any contractor when such a threat hangs over them”.[16]
[15]NT.100.001 (first page only); CM.088 (complete document)
[16]CM.043 at CB.10484

I accept Mr Duck’s evidence. In my opinion, Command’s relationship not only with the Trust but with Gardner + Lang gave Command reason to think that it was, at least to an extent, under siege. This not surprisingly affected the freedom (or lack of it) with which Command was prepared to discuss its performance when that was under question. The ramifications are reflected in (for example) the ambiguity of the language used by Command when describing its initial attempts to meet criticism if its maintenance of fire dampers: a matter discussed at (among other places) paragraph [418] below.

As at 10 October 1992, however, all this lay in the future. It is appropriate now to examine in greater depth the contractual background against which the relationship between the Trust and Command developed, then fell into difficulties, and finally resulted in the events of 19 January 1998.

The Contractual Background

(a) Maintenance Agreement

I have, in my analysis of the uncontentious portions of the further amended statement of claim, already outlined the scope of Command's contractual duties under the maintenance agreement. This analysis may be summarised by saying that the services which Command was requires to provide to the Trust generally included the total maintenance and operation of the equipment described in clause A1.1 of that agreement. The standard of service was also the subject of that document. It provided, by clause 2.1, that Command must perform its contracted services in accordance with the maintenance agreement "and with the diligence and care expected of a professional experienced in providing services of the type to be provided under this agreement and, without limitation, in a good and workmanlike manner." Likewise (as was provided by clause 2.3) Command warranted that all materials, workmanship and methods used by it would be suitable for their intended purposes and of an agreed quality; would meet the performance requirements set out in clause A7 of schedule A; would (unless the maintenance agreement provided otherwise) comply with all relevant legislation and Australian standards; and would not result in a breach of any warranty "in respect of the equipment". The latter term is not explicitly defined, but appears to mean the equipment which (according to clause A1 of schedule A) is "described in detail in clause A1.1" of that schedule.

In performing the services, Command undertook to comply with the reasonable directions of Gardner + Lang so long as these were not inconsistent with the maintenance agreement, and provide to the Trust information about the manner and timing of performance of those services.[17] In addition, Command was required to ensure compliance with all relevant health, safety and like legislation.[18] "Relevant" in this sense means relevant to Command's responsibilities. These, as I indicated at paragraph [13] above, do not include general responsibility for the fabric of Nauru House but (in the words of paragraph 3 of the further amended statement of claim) rather encompass "the maintenance and operation services … in respect of the equipment within the site". Command also agreed to provide a properly qualified supervisor, and at least two competent and experienced technicians. The supervisor was to work during business hours on weekdays and be on call at all other times. Two technicians were to be on site between the hours of 7.00 a.m. and 5.00 p.m. each weekday, with at least one of them on site on weekdays for the further hour between 5.00 p.m. and 6.00 p.m.[19]
[17]Maintenance agreement, clause 3.1 (CM.003 at CB.17917)
[18]Maintenance agreement, clause 3.2(c) (CM.003 at CB.17918)
[19]Maintenance agreement, clause 4 and schedule A (CM.003 at CB.17919)

For all this, the fee was $95,000 per month. It was reviewable on 1 October and 1 April each year.[20] Any increase, decrease or other change in the services that Command was obliged to perform would be reflected in an increase or (as the case required) decrease in the fee.[21] As I understand the evidence, however, such adjustments to the sum of $95,000 per month as were made before the contract was terminated were later wholly rescinded. No claim is made in relation to them. As is alleged (or conceded) in paragraph 23 of the further amended statement of claim, the Trust until termination of the relationship continued to pay, and Command continued to receive, $95,000 per month. This was so despite Command being relieved, on 1 July 1997, of its responsibility for the duties of the front desk, the control room and the security system. Command complained and complains about the change, alleging in paragraph 9 of its further amended reply not only that its loss and damage is not confined to the consequential reduction in the fee (there was such a reduction, but it was later made good), but that the loss extends to "the matters referred to in paragraph 18 of its further amended statement of claim". These are that Command "was wrongfully prevented from performing the services withdrawn and hindered in performing the remaining services under the maintenance agreement and it was put to substantial trouble, inconvenience and expense and it was greatly injured in its business, whereby it suffered loss and damage."
[20]Maintenance agreement, clause 6.1(CM.003 at CB.17924)
[21]Maintenance agreement, clause 6.2(CM.003 at CB.17924)

There follows, in the same paragraph, the heading "Particulars". Under that heading, however, the pleading simply records that "[f]ull particulars of loss and damage will be provided prior to trial." Because I am considering only questions of liability (damages being left to a further hearing) this is not a matter of present relevance.

(b) Right to Terminate

By contrast, the right of a party to terminate the maintenance agreement is of obvious and immediate importance. Clause 7.1(a) of that agreement lists the defaults which, were they to be committed by Command, would entitle the Trust to "send Command a notice specifying the default and stating the intention of the [Trust] to terminate this agreement." A notice of that kind may be sent if Command:

"(i)wholly or party suspends the performance of the services [that is, the services set out in Schedule A] without reasonable cause;
(ii)fails to proceed with the performance of the services regularly or diligently;
(iii)fails to proceed with the performance of the services in a competent and workmanlike manner;
(iv)unreasonably fails to comply or delays in complying with a written direction given by the [Trust] in accordance with this agreement; or

(v) commits a substantial breach of this agreement."

Having received notice, Command must act. The default must either cease, or be rectified. If the notice is not followed by either cessation or rectification, or if Command has not taken all reasonable steps to satisfy the Trust that the default will be rectified or cease without further delay to the performance of the services, then the Trust may without prejudice to any other rights or remedies it has, terminate the agreement by written notice to Command to that effect.

Termination may also occur given other circumstances. One of these is relevant here. If Command were to repudiate the maintenance agreement, then the Trust "at any time, without prejudice to any other rights or remedies, may by written notice to Command … terminate this agreement."[22] The Trust alleges that, on 16 January 1998, it gave such notice pursuant to clause 7.2(h). By doing so, it terminated both the maintenance agreement and the CERA. The Trust does not allege that termination was effected following service of a notice under clause 7.1(a) of the maintenance agreement.

(c) CERA

[22]Maintenance agreement, clause 7.2(h) (CM.003 at CB.17927)

The CERA contains no like provisions. Because it is collateral to the maintenance agreement, however, the latter's terms in this regard are to be imported into the former, the overriding purpose of which is to impose upon Command the cost of the capital works program described in the appendix to the CERA.

It is helpful at this point to keep in mind the background against which the maintenance agreement and the CERA were brought into existence. Command was engaged to maintain and operate the equipment on which the economic viability of Nauru House depended. But by 1992 some of that equipment had reached or exceeded its economic life span. It required replacement. This applied, in particular, to the building monitoring system (the "Honeywell Delta 2000" system), the fire protection system, the air-conditioning equipment, the hydraulics and the security access system. The new equipment, it was envisaged, would be operated and maintained by or at the direction of – and under the overall responsibility of – Command. That company therefore had a real interest in ensuring that it was of a quality and a kind that would enable Command to provide the services for which, by the maintenance agreement, it had contracted to provide. It might be thought that this interest would best be protected if Command purchased and owned the equipment, subject to ownership being transferred – at a fair price – to the Trust at the expiration or earlier termination of the 15 year term of the maintenance agreement.

The practical merit underpinning the concept of Command's ownership did (and does) have the drawback that it sits uneasily with the law of property. Implementation of the CERA would necessarily result in large and complicated items of machinery, owned by Command, being placed in, on, or even within the fabric of, a building owned by the Trust. Some if not all of the equipment would be custom-built for Nauru House alone. It could not readily (or at all) be transported elsewhere, and its market value would reflect that fact.

It is against this background that the drafting of the CERA took place. By it, Command agreed "to bear the costs of the works detailed in the appendix headed 'Proposed Capital Works Program'."[23] The expression "works" is defined to mean "all works, installations and equipment to be undertaken or installed by Command … under this agreement".[24] They "are in addition to any replacement of equipment and spare parts (as required) in respect of breakdown and equipment becoming worn."[25]
[23]CERA, clause 2(CM.004)
[24]CERA, clause 1B(CM.004)
[25]CERA, appendix (CM.004 at CB.02348)

The "works" which are "detailed" in the appendix all fall under the heading "Capital Items". They include the "complete installation" of the "Barber Colman [Network 8000 Building Automation] System", and an "upgrade" (a) of the "fire protection and services … including 'EWIS' system", and (b) of the air-conditioning equipment. Other items included in the appendix, but without any reference – such as "installation" or "upgrade" - to Command's obligations towards them, were "hydraulics" and the "security access control system" (the CERA contains no definition of either of these terms, nor any further description of what is involved). "EWIS" is an acronym for "Emergency Warning Integrated System".[26]
[26]Witness statement of Neumann Ashkar, paragraph 4 (NT.116 at CB.19355)

It is in my opinion clear from the above that Command was obliged by the CERA to supply and install at its own cost each "capital item" listed in the appendix. This conclusion is strengthened by clause 4, which provides that with certain exceptions "Command … will not charge any fee in addition to the fee payable under the [maintenance agreement]".

Two of the exceptions are dealt with in clauses 5 and 6 of the CERA. They recognise that from time to time equipment needs to be replaced or its capacity increased. They also recognise that funds are required for this purpose. They provide that the cost of "works necessary to satisfy an increase in capacity needed in the building",[27] and the cost of the replacement of existing but "worn out" equipment,[28] will be borne in the first instance by Command. Where worn out equipment is replaced, that which is new must have a capacity at least equal to that of the old. If the capacity of the new exceeds that of the old by more than 20%, the fee payable under the maintenance agreement "shall be increased to reflect all costs incurred by Command … as a result of the [Trust's] requirements including, without limitation, finance costs and the additional cost".[29] The cost of "works necessary to satisfy an increase in capacity needed in the building" is likewise to be recouped by an increase in the fee payable under the maintenance agreement. Again, the increase shall "reflect all costs incurred by Command … including, without limitation, finance costs."[30]
[27]CERA, clause 5 (CM.004 at CB.02343)
[28]CERA, clause 6 (CM.004 at CB.02343). It is to be noted that this clause is headed "Replacement works".
[29]Ibid (CM.004 at CB.02343)
[30]CERA, clause 5 (CM.004 at CB.02343)

Command's standard fee of $95,000 per month is, as I recorded in paragraph [25] above, subject to increase or decrease according to whether the services provided by Command increased or decreased. In addition to fluctuations thus induced, the fee might pursuant to clause A1.2 of schedule A of the maintenance agreement be increased on an ad hoc basis. By that clause, Command was entitled to charge for minor works performed at the Trust's request. But, apart perhaps from the cost of preparing certain reports,[31] Command's expenses in fulfilling its contractual obligations under both the maintenance agreement and the CERA had to come from Command's resources – which, of course, included the monthly fee. In other words, as between Command and the Trust, Command not only had to cover all the expenses incurred in fulfilling its obligations to ensure "the total maintenance and operation of the equipment at Nauru House"[32], but also had to find the money to purchase the "capital items" listed in the appendix to the CERA. If the monthly fee was insufficient for these purposes, Command would of course suffer a loss. It also follows that Command’s profit was adversely affected by the amount it spent on fulfilling its obligations under the CERA.
[31]CERA, clause 4 and maintenance agreement, schedule A, clause A4(b)
[32]Maintenance agreement, schedule A, clause A1 (CM.003 at CB.17934)

He who pays for a large and expensive item of capital equipment would normally require, as a quid pro quo, the transfer to him of the ownership of (or, as the lawyers would say, the property in) that equipment. So it was with Command. Indeed, this notion was by the contractual arrangements between Command and the Trust extended to capital items which, although originally purchased (and partially installed) by the Trust before Command came into the picture, were to be operated by Command thereafter, following Command's completion (at its own expense) of the installation. This included so much of the Barber Colman system as had already been purchased and installed by the Trust.[33] To the extent that Command reimbursed the Trust for the cost of equipment purchased, and work done, by the Trust before Command's engagement, the work and equipment "will be the property of Command … unless and until they are assigned by Command … in accordance with this clause 7 or clause 9 of this agreement."[34] But with ownership comes rights. Accordingly, by clause 7(c) of CERA, Command was entitled to deal with all works as it saw fit, provided that such dealings did not cause a breach of either the CERA or the maintenance agreement. The entitlement was, according to clause 7(c), to include "without limitation, [the right] to assign the equipment to and lease the equipment back from … any financial institution for financing purposes."
[33]CERA, clauses 7(b) and 13 (CM.004 at CB.02344 and CB.02346)
[34]CERA, clause 7(a) (CM.004 at CB.02344)

There can thus be no doubt that the parties contemplated the possibility of Command borrowing the funds necessary to defray the initial cost of "the works" – which by definition[35] included the cost of acquisition and installation. Equally, however, there can be no doubt that ownership of the "capital items" listed in the appendix was to reside in Command until termination of the maintenance agreement, or until an event such as the assignment of Command's interest to a financier. So much is clear from clause 7 of the CERA.
[35]CERA, clause 1B (CM.004)

It was, nevertheless, ownership with a difference. Command was required to limit the exercise of its normal rights as owner so as not, by their exercise, to commit a breach of either the maintenance agreement or the CERA. Moreover, by clause 8 of the CERA "The usage of the works will be for the benefit of the [Trust] under the [maintenance agreement]." In this way, Command became the owner of equipment to be used exclusively for a third party (the Trust). Every item of that equipment was housed in or on premises owned by the third party. Indeed, some of it was not merely securely attached to Nauru House but became an integral part of its fabric.

It was easy enough to decide what to do with "the works" on termination, by effluxion of time, of the contractual relationship between the Trust and Command. The Trust would acquire ownership, which Command would transfer on payment of a fair price. Termination before the expiration of the agreed 15 years would, however, present a more difficult problem, at least if in the meantime Command had assigned "the works" or some of them to a financier as security for such financial accommodation as Command obtained in order to cover its outlays. In such circumstances, the interests of the Trust, Command and the financier might well come into conflict as between themselves and with the general law of property. Only carefully drawn contracts could ensure that the potential problems were avoided.

Clause 9 of the CERA represents the parties’ attempt to tackle this difficulty. It purports to deal with "the interest of Command … and of any assignee or transferee from Command … in the works" on the expiry or termination of the maintenance agreement. It provides that, on either expiry or termination, the relevant interest (that is, in the works) will be transferred to the Trust. The Trust, in turn, will pay Command for that interest. When an item thus transferred has not been earlier assigned or transferred by Command to a third party, the Trust will pay an amount which is equivalent to the book value of the item as stated in the accounts of Command as prepared for the purposes of income tax. Where, on the other hand, the item has been previously assigned or transferred by Command, the Trust will pay "the residual value".[36] This shall be the value of the item stated in a table to be provided by Command to the Trust within 60 days of completion of the installation, transfer or assignment of the item (whichever shall last occur).[37] For its part, on payment by the Trust to Command of all amounts due to the latter, "Command shall be responsible for discharging the interests of any assignees or transferees in the works".[38]
[36]CERA, clause 9(a)(i)B (CM.004 at CB.02344)
[37]Ibid, clause 9(c) (CM.004 at CB.02345)
[38]Ibid, clause 9(b) (CM.004 at CB.02345)

Other express terms of the CERA are relevant. They are as follows:

(a)before the installation of any equipment, or before any other work, began, Command would provide Gardner + Lang with the relevant specification;[39]
(b)all work was to be done in a good and workmanlike manner, and all equipment was to be suitable for its purpose "and of an agreed quality";[40]
(c)Command was "not … entitled to recover [from the Trust] costs in excess of the amounts set out in the table" which forms part of the appendix to the CERA.[41]

[39]CERA, clause 3(a) (CM.004)

[40]Ibid, clause 3(b) (CM.004 at CB.02343)

[41]Ibid, appendix (CM.004 at CB.02348)

Only the last of these terms is subject to any controversy; and that surrounds its construction, not its existence. I will return to that controversy later in this judgment. In the meantime, it is sufficient to note that the parties agree on the documents which evidence both the maintenance agreement and the CERA. For the most part, moreover, their interpretation is not much in doubt. Yet significant portions were drawn at a high level of generality, whereas the relationship between the Trust and Command was, and was intended to be, long, complex and operating at several levels at once: the day to day, the tactical and the strategic. Not only that, but it also involved more than the principals. Each of the parties had employees at different levels of seniority interacting with counterparts among the employees of the other party. Moreover, each at different times, and the Trust frequently, acted through agents who were not employees.

In these circumstances, problems on the ground were almost inevitable, at least after relations between the parties soured. At the same time, although the possibility of conflict was ever present, paradoxically the structures within which problems might be created and nourished also contained mechanisms for their resolution. By operating flexibly under the broad contractual umbrella, the problems of managing a modern, multi-storeyed building could be sensibly addressed. The very generality of the governing contracts meant that, where practical people of goodwill dealt with practical problems, those involved need not pause to consult the maintenance agreement or the CERA before ever making a decision. If they were wise, and intelligent, and used their common sense, they could be confident that, at least in general, the legal niceties of their contracts could happily take care of themselves. Thus, in July 1997, the Trust engaged a firm of engineers called Meinhardt (Vic) Pty Ltd ("Meinhardt") to conduct two "engineering audits" of the building: a "general" audit and an "essential services" audit. Entirely appropriate, one would have thought. Every owner of a large commercial building has every reason to want to know how its property is performing, and no reason – except in the unlikely event that a contractual term prohibited that step – why it should not look to an independent third party for an objective evaluation. But neither the maintenance agreement nor the CERA have a word to say about audits, whether of the engineering or any other variety. Moreover, there already was a third party with supervisory functions standing between the Trust and Command: Gardner + Lang. What is more, Gardner + Lang had its ordained place under the Trust's and Command's contractual sun. The maintenance agreement made specific provision for it.[42]
[42]See, for example, clauses 1.3 and 3.1 of the maintenance agreement (CM.003 at CB.17916 and CB.17917)

Yet, the maintenance agreement being silent about the role of an auditor, it is also necessarily silent about the right of, or power in, a third party such as Meinhardt to instruct Command about the latter's response to the audit's findings. It is equally silent about Meinhardt's authority to agree on the Trust's behalf about the nature, or the quality, or the timing, of any work Command might be asked to do to remedy deficiencies, brought to light by the audit, in Command's performance of its contractual obligations. By contrast with the position of Gardner + Lang, Command gave no undertaking to comply with Meinhardt’s reasonable directions. It was, of course, bound in all it did to act with the requisite degree of diligence and care.

Practical people who know what they are doing, and why, do not necessarily worry about what a broadly drawn contract might or might not say. This is not to suggest that in any given case the contract (or contracts) is (or are) irrelevant. Far from it. It is to say that taking fine contractual points, or worrying obsessively about what a contract may mean, is only sometimes the best way of conducting one's affairs. It is also to say that, where more than one approach to a contractual problem is properly open to a court, it should tend towards that which gives fullest acknowledgment to practical reality.

The Pleadings

Command's position is that, examined in this light, its conduct of its responsibilities under the maintenance agreement was unimpeachable. It may be conceded that the audits disclosed matters which needed to be addressed. In short, they disclosed that Command's work was not faultless. But any faults were readily susceptible of correction, and Command had the necessary remedial steps in hand, to the satisfaction of Meinhardt, when on 19 January 1998 the Trust "wrongfully excluded [Command] from entering Nauru House and prevented [it] from performing the services under the maintenance agreement".[43] In so doing, the Trust "repudiated the maintenance agreement and refused any longer to be bound thereby."[44]
[43]Further amended statement of claim paragraph 26
[44]Ibid, paragraph 28

The Trust is in passionate agreement with one of these propositions: that the maintenance agreement was repudiated. The difference is in the identity of the repudiating party. Either way, the core of the dispute is Command's conduct under the two agreements. The Trust's case is not that a notice was served on Command pursuant to clause 7.1(a) of the maintenance agreement, and that Command failed to respond appropriately; it is that Command repudiated both the maintenance agreement and the CERA, and that in consequence the Trust exercised the right given by clause 7.2(h) of that agreement to terminate the agreement by giving notice to that effect.[45] Command's repudiation arose, the Trust alleges, by reason of the seriousness and extent of its breaches of the maintenance agreement and the CERA, and because Command evinced an intention no longer to be bound by the maintenance agreement.[46] It is now necessary to examine in more detail how the Trust pleads this part of its case.

(a) Alleged Express Terms of Maintenance Agreement

[45]Amended defence and counterclaim, paragraphs 31G and 31J

[46]Ibid, paragraphs 31H and 31I

In paragraph 31A of the amended defence and counterclaim, the Trust sets out various express terms of the maintenance agreement. Command admits them all. Their effect, to which I have already referred, in part, in paragraph [23] above, is that Command was required by the maintenance agreement to operate and maintain the specified equipment with the diligence and care expected of a professional experienced in the relevant fields; that it "would provide the personnel necessary to perform the services in accordance with its obligations"[47]; that it "would prepare and maintain a schedule of planned preventative maintenance in accordance with its professional expertise, the relevant Australian Standards and the manufacturer's recommendations for the equipment"[48]; and that it would by appropriate reporting ensure that the Trust was properly informed (i) at six monthly intervals, about progress of remedial works necessary to maintain the equipment at its full working capacity, and major repairs or other work which might put the equipment out of service, and (ii) at monthly intervals, about all equipment failures or irregularities not repaired or rectified within six hours of Command becoming aware of them.[49]

(b) Alleged Implied Terms in Maintenance Agreement

[47]Amended defence and counterclaim, paragraph 31A(d)

[48]Ibid, paragraph 31A(e)

[49]Ibid, paragraph 31A(f)-(h)

These reports are also the subject of paragraph 31B of the amended defence and counterclaim. It is there pleaded that "upon the proper construction and true interpretation of the express provisions of the maintenance agreement, or alternatively there were implied terms of the maintenance agreement, that:

(a)reports submitted by [Command] to the [Trust] (or its representative Gardner + Lang) as required by the maintenance agreement:
(i)would be prepared honestly and accurately;
(ii)would not assert that any of the services had been performed when it [sic] had not been performed;
(iii)would not contain a material falsehood; [and]

(b)[Command] would not advise the [Trust] that it had performed any of the services when it had not done so.”

These allegations are repetitious, since if a report is honest and accurate it will by definition neither assert that services have been performed when they have not, nor contain a material falsehood. But, clearly, an obligation to report carries with it an implied obligation to report honestly; and perhaps also an obligation to exercise reasonable care to ensure that the report is accurate. To this extent, paragraph 31B of the amended defence and counterclaim is, as a pleading, unremarkable. Command, in its further amended reply, does not admit the allegations it contains. As a matter of law, however, the allegations to be found in sub-paragraphs (a) and (b) of paragraph 31B cannot be denied.

So much cannot be said for that part of the pleading which appears in paragraph 31B(c). It alleges that, properly construed, the maintenance agreement contained an implied term that Command "would not fail to maintain critical services in the building which put at risk any of the [Trust’s] leases with its tenants".

In BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[50] the High Court described the circumstances in which a term will be implied in formal contracts such as those between the Trust and Command. It is must be reasonable and equitable; it must be necessary to give business efficacy to the contract – so that no term will be implied if the contract is effective without it; it must be so obvious that "it goes without saying"; it must be capable of clear expression; and it must not contradict any express term of the contract.
[50](1977) 180 CLR 266 at 283

It follows that one cannot determine whether or not a term is to be implied in any particular contract until one has carefully examined its express terms. The point of departure in this case is clause 1.1 of the maintenance agreement. This requires Command to "provide the services set out in schedule A", the opening words of which are of considerable width: "The scope of services generally includes the total maintenance and operation of the equipment at Nauru House". But these opening words must, of course, be read in context; and the immediate context is clause A1 itself. It is, I think, appropriate that it now be reproduced in full:

"The scope of services generally includes the total maintenance and operation of the equipment at Nauru House, Melbourne as described in detail in clause A1.1 and other specified duties as described in detail in clause A1.2 at the site."

No fair reading of this clause, it seems to me, could lead to any conclusion other than that the services which, by the maintenance agreement, Command is required to provide are described by, and only by, the express terms of that agreement, including especially clauses A1.1 and A1.2. Neither clause says a word about "critical services". Not only that, but there may be services which are critical to the proper management or operation of Nauru House but which are totally divorced from any aspect of Command’s responsibilities to the equipment under its charge. If the maintenance agreement were to include an implied term that Command would not fail to maintain critical services, a term which ex hypothesi is not to be found in the relevant document itself, then that document would speak falsely when it states unequivocally that the scope of services to be provided by Command is described in detail in clauses A1.1 and A1.2. In other words, the insertion of the implied term for which the Trust contends would do that which, in the BP Refinery case, and in many other judgments besides, the High Court has said must not be done: it would contradict an express term, or perhaps several express terms, of the contract.

There are other reasons why the term pleaded by the Trust cannot be implied. First, such a term is not necessary to give business efficacy to the contract. And secondly, the definition of the expression "critical service" is not so obvious that it goes without saying.

The result is a minor difficulty with the pleading. Paragraph 31C(c) contains lengthy particulars of Command's alleged breach of the (implied) requirement – which the Trust contends, wrongly in my view, is imposed upon it - to maintain "critical services". But if, as I have concluded, the necessary implication cannot be drawn, then there can be no breach: Command cannot be in breach of a term that does not exist. On the other hand, some of the services which the Trust in its amended defence places under the heading "critical services" do fall into the class of services which, by the maintenance agreement, Command is required to provide. In these circumstances, it is in my opinion appropriate to allocate to those services the particulars given of them. The fact that the particulars are not – and cannot be – of "critical services" within a contract that does not recognise such creatures, is an issue of no moment. In so far, therefore, as the services (inappropriately) pleaded by the defendant as being "critical" properly fall within the services which are expressly covered by the terms of the maintenance agreement, I will proceed on the basis that the relevant particulars are to be found in paragraph 31C(c) and in such other particulars of "critical services" as are provided elsewhere.

I should perhaps add that there were many references at the trial, as there are many references in this judgment, to “essential services”. This of course says nothing about the inclusion in (or exclusion from) the contractual relationship between Command and the Trust of a term or terms covering such creatures. It merely reflects the fact that the parties referred in their everyday communications to some of the services for which Command was responsible as “essential services”.

(c) Alleged Breach of Maintenance Agreement

Having pleaded that the maintenance agreement contained express and implied terms, the amended defence and counterclaim proceeds in paragraph 31C to allege breaches of those terms, or some of them. It is asserted that Command:

(a)materially falsified reports, contrary to the implied term that they would be prepared honestly and accurately;[51]
(b)repeatedly failed to perform its obligations under the maintenance agreement, contrary to the express term that it would provide the services set out in schedule A;[52]
(c)failed to perform the services with the appropriate degree of diligence and care;[53]
(d)failed to provide either the contractually required personnel or the contractually required reports.[54]

[51]Amended defence and counterclaim, paragraph 31C(a)

[52]Ibid, paragraph 31C(b)

[53]Ibid, paragraph 31C(h)

[54]Ibid, paragraph 31C(i) – (m)

I have not attempted to reproduce here all the allegations of breach made in paragraph 31C of the amended defence and counterclaim. Those omitted are, however, merely repetitious of those to which I have referred. Command denies them all.

(d) Allegations Concerning Sogelease

The amended defence and counterclaim then moves to plead, in paragraph 31D, certain express terms of the CERA. I attempted to analyse them in paragraphs [33] – [43] of this judgment. Apart from one point of construction, there is no dispute about them. This is in stark contrast to an allegation upon which the Trust placed much faith at trial, and which appears in several guises within paragraph 31E of the amended defence and counterclaim. It is there alleged that "upon the proper construction … of the express provisions of the [CERA], or alternatively there were implied terms of [that agreement] that:" - and there follow nine "further terms" of the CERA, four of which are divided into sub-terms. They constitute the Trust's unsatisfactory attempt to plead that which it really wants to allege. This is, first, that Command tried to place upon the Trust obligations for which, in truth, Command alone was and is responsible. Those obligations were to pay Command’s financier, Sogelease Australia Ltd (“Sogelease”). And secondly, the Trust asserts that its rights to the ownership and possession of equipment to which the appendix to the CERA refers were compromised by Command's dealings with its financier.

The problem has its origins in March 1994. Command then entered into a sale and lease agreement with Sogelease. The agreement is in writing. It is dated 1 March 1994. It has a heading: "Finance Lease Agreement". It is by this name that the parties knew it; and it is therefore convenient to refer to it accordingly in this judgment.

Three items of equipment, or “systems”, were involved. Each of them is mentioned in the table which forms part of the appendix to the CERA. They are the Barber Colman Network 8000 Building Automation System, the Emergency Warning Integrated System ("EWIS") and the Security Access System. According to particulars given under paragraph 31F of the amended defence and counterclaim, Command – for the sum of $2,566,536 – assigned to Sogelease its interest in the three systems. The actual cost to Command was, however, $1,944,300. All the equipment was duly installed in Nauru House.

The Trust takes the position that Command's agreement with Sogelease was overly generous to the financier. The Trust is concerned that, as a consequence, Command will now seek to impose upon the Trust, as the price of its acquisition of the three items of equipment, costs which under properly prudent management would not have been incurred. As a further consequence, the Trust alleges, Sogelease is now in a position to make, and perhaps sustain, a claim to an interest in the equipment, which interest might have priority over that of the Trust.

The Trust pleads this part of its case in paragraphs 31E and 31F of the amended defence and counterclaim. One point about paragraph 31E may be made immediately. It is seldom, if ever, possible to construe express terms of a contract in a way which results in the creation of an additional, stand alone, term – still less a whole raft of them; in this case, nine. Pleading in this way does not generally assist clarity of thought. It obfuscates. It ignores the proposition that if, where your contract has been reduced to writing in a document intended to be comprehensive, you cannot make out your commercial contractual claim on the basis of the express contractual terms, but need to persuade a court to construe or imply an additional nine, then either your aim is sadly astray, or the target does not exist; or, in other words, the issue sought to be advanced by reliance on the implied terms is probably a lost cause. At the very least, the benefits to be obtained by pursuit of a claim of that kind should be carefully assessed against the cost and difficulty, and likely success, of the attempt.

The first of the terms which the Trust would have me conjure by implication out of the CERA is that Command would not exercise or purport to exercise its rights under the CERA in a manner which increased or purported to increase the Trust's liabilities or obligations.[55] But, of course, Command could do no such thing. One party to an agreement cannot unilaterally increase the liabilities or obligations of another party to that agreement. This is not an instance of the application of an implied term. It is an instance of the operation of a fundamental element of contract law. Of course one party to a contract may seek to deal with property in a way which adversely affects another party's title to or interest in that property. This is not what we are concerned about here, however, because this is not that with which the first of the so called "further terms" is concerned.
[55]Amended defence and counterclaim, clause 31E(a)

On this point, the real complaint of the Trust seems to be encapsulated in sub-paragraph (b) of paragraph 31E. The term there alleged is that Command "would not enter into or purport to enter into a sale and lease back arrangement in respect of the works for an amount exceeding the amount for which Command had purchased [them]". There is, however, a difficulty here too.[56] The CERA, it will be remembered, expressly entitles Command to assign equipment to, and lease it back from, "any financial institution for financing purposes."[57] The CERA was therefore clearly predicated upon the possibility – even, perhaps, the probability – that Command would seek external sources of finance for the funds required if it were to fulfil its obligations. A sale and lease back arrangement is a common or garden basis for the provision of financial accommodation. More relevantly, finance is not generally obtained without cost. The parties must have assumed that if Command were to obtain funds from an external source, then the amount ultimately recouped by that source, and therefore ultimately repaid by Command, would exceed the price received by the supplier. It follows that a term such as that set out in sub-paragraph (b) of paragraph 31E of the amended defence and counterclaim cannot be implied as a term of the CERA. It contradicts the express terms of that agreement. For the same reason, neither can "the proper construction and true interpretation" of the CERA produce such a term.
[56]A very considerable difficulty. The CERA does not require Command to decline finance unless it can get it free of interest or like cost.
[57]CERA, clause 7(c) (CM.004 at CB.02344)

The Trust next alleges a term that Command would exercise its rights under the CERA in good faith and not so as to harm the interests of the Trust.[58] So much may be conceded. One then goes to the alleged breach of this term. It is that Command entered into the sale and lease agreement of March 1994 "for an amount of $2,566,536" when "[t]he actual cost to [Command] of that equipment was $1,944,300."[59] Similar breaches are pleaded in the following sub-paragraphs of paragraph 31F of the amended defence and counterclaim, down to sub-paragraph (g).
[58]Amended defence and counterclaim, paragraph 31E(c)
[59]Ibid, particulars under paragraph 31F(a)

It is necessary here to repeat the point made in paragraph [67] above. The CERA is not concerned to impose upon Command a wholly unreasonable restriction: in this case, a requirement that any finance it might obtain for the purposes of fulfilling its obligations under clause 2 of that agreement (ie. "to bear the cost of the works detailed in the appendix") be obtained from that mythical creature, a financial institution prepared to provide financial accommodation without charge. Command "is entitled to deal with all works as it sees fit (provided that any such dealing does not cause it to breach this agreement or the [maintenance agreement])". And no breach is committed by a sale and lease back agreement with the financier, because that is precisely what clause 7(c) of the CERA explicitly empowers Command to do. Command having been granted that power, the Trust cannot immediately negate it. Yet that would be the result if Command could not enter into a sale and lease back agreement unless the financier was prepared to waive its fee.

The CERA, then, is only concerned to limit the Trust's exposure. Whatever those limits may be (and clause 9(a)(i)(B) restricts the Trust's exposure to an amount equivalent to the residual value of the equipment) Command cannot repudiate the CERA simply by entering into a financing agreement with a financier pursuant to which the financier makes a profit, and/or by which the amount financed is greater than the cost of the equipment; and this is true no matter how large that additional amount may be. It is the CERA, not the finance lease agreement, which determines the extent of the liability of the Trust. In other words, the Trust's exposure under the CERA cannot be affected by the extent of Command's exposure under its financing arrangements. The Trust's exposure is regulated by the CERA. That agreement contains nothing which would empower Command, by unilateral action, to increase the Trust's liability to Command or anyone else. Such liability is not and cannot be enlarged beyond the residual value, or (as the case requires) the market value, of "the works", no matter what arrangements Command may happen to have made with Sogelease. There may, of course, be a controversy over what the residual (or market) value is. That is a different question.

It is all there, in clause 9. Upon termination of the maintenance agreement, Command's interest in the three items of equipment shall be transferred to the Trust.[60] In return, the Trust will pay neither more nor less than the residual value or the market value, whichever is the higher; [61] and I repeat that this is so no matter what arrangements Command may have made with its financier (Sogelease). And the residual value "shall be the value of the items stated in a table to be provided by Command … to the [Trust] within 60 days of" the happening of the last to occur of three identified events.[62] So the Trust's obligation is clear, and limited. As for whatever obligations Command might have to Sogelease, Command is by clause 9(b) of the CERA responsible for discharging them – but, of course, not before the Trust has paid to Command all Command is owed by the former. In short, on termination, the Trust is obliged to pay the "residual value" to Command. Command must then discharge the interests of Sogelease. If this requires payment to Sogelease of an amount greater than the residual value, Command must fund the difference. With Sogelease thus paid out and removed from the picture, Command must transfer to the Trust Command's interest in "the works".
[60]CERA, clause 9(a) (CM.004 at CB.02344)
[61]Ibid
[62]Ibid, clause 9(c) (CM.004 at CB.02345)

There is no allegation in the amended defence and counterclaim to the effect that Command failed to provide the table of "residual values" to which cl.9(c) of the CERA refers. On the contrary, by paragraph 31F(c) of the amended defence and counterclaim the Trust alleges that Command provided it with tables setting out the residual values. The problem, according to the pleading, was that those values were incorrectly calculated. But even if they were, the Trust has its remedy – to redo the calculations. The solution is not the termination of the contracts for a repudiation that never was.

The result is in my opinion clear. The Trust's allegation that, by or as a result of its dealings with Sogelease, Command repudiated the CERA and the maintenance agreement, cannot be made out.[63]
[63] I will, of course, consider the Trusts’ claim against Sogelease; but in a separate judgment.

This proposition maybe tested in another way. Had the finance lease agreement run its course in accordance with its terms, Command would by January 2002 have paid out the interest of Sogelease in the works. And the amount required to effect this would have been a matter of total indifference to the Trust. In those circumstances, the allegations now put by the Trust would never have been aired; and it would certainly not have been asserted that, by entering into the sale and lease back arrangement with Sogelease, Command had repudiated its contracts with the Trust. In other words, had the maintenance agreement and the CERA run their full course, Command (on the present hypothesis) would have discharged its obligations to Sogelease. In doing so, Command could not have looked to the Trust for any contribution; and, equally clearly, the Trust would have been under no contractual obligation to either Command or Sogelease in that regard. The equipment (or, as the CERA describes it, "the works") belonged not to the Trust but (for all it mattered to the Trust) either to Command or to Sogelease. It was accordingly for one or other of the latter (again, it was a matter of no particular moment to the Trust) to ensure that the initial purchase price was paid to the original suppliers. How the necessary funds were raised was also a matter for Command, because the cost of any finance would be borne by Command. On this hypothesis, which of course is no more than that which was contemplated by the Trust and Command when their contractual arrangements were entered into, the Trust would not have been troubled by anything arising between Command and its financier.

Had Command failed to pay what it owed to Sogelease, however, there may have been a squabble between Sogelease and the Trust over the fate of "the works". That fate, nevertheless, would not have been determined according as to whether or not invoices had been inflated, or on whether Command entered into the finance lease agreement of March 1994 "for an amount of $2,566,536" when "[t]he actual cost to [Command] of that equipment was $1,944,300." It would have been determined by reference to the right, clearly given by the CERA, and admitted in paragraph 31D(g) of the amended defence and counterclaim, to assign the works to a financier and then lease them back.

“Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.”[1185]

[1184](1889) 14 AC 337

[1185]Ibid at 374

His Lordship later remarked:

“In my opinion making a false statement through want of care falls far short of, and is a very different thing from, fraud, and the same may be said of a false representation honestly believed though on insufficient grounds.”[1186]

[1186]Ibid at 375

Given the seriousness of an allegation of fraudulent representation, I also have regard to the general principle that I must act with “much care and caution” before finding that such an allegation is established: Briginshaw v Briginshaw.[1187]
[1187](1938) 60 CLR 336 at 347

I have found that Command was not as open or as careful as it should have been in its reports and representations to the Trust. Some were ambiguous; and sometimes this was deliberate. Some were misleading. Most serious of all, some were simply wrong. Nonetheless, the Trust has not satisfied me on the balance of probabilities that fraud was involved in any of Command’s communications. Deliberate ambiguity has about it an element of deception, but is generally difficult to categorise as mendacious. I do not think that mendacity was involved in this case. Nor am I satisfied that those statements which were misleading or wrong were deliberately so. They were, in my opinion, the product of carelessness.

This, of course, does not mean that Command has no case to answer in relation to such lack of care. There can be no doubt that a relationship such as that between an owner of a large city building and its maintenance contractor is one which depends for its success on good communication. A failure to communicate in this way may amount to a breach of a term with which strict compliance is essential. Or that failure may be one which renders impossible the substantial performance of the relevant obligation. Alternatively, it may be of such magnitude, or repeated so often, as to amount to a repudiation of Command’s contractual responsibilities.

(b) Breach of essential terms

The Trust submits that certain terms in the maintenance agreement and the CERA were properly classified as conditions the breach of which gave rise to an immediate right to terminate. As Brennan J observed in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd,[1188] where repudiation of a term is alleged, a right to rescind the contract depends on the importance of the term repudiated. Such a term has been variously described as a “fundamental obligation”, [1189] an “essential promise”[1190] or a promise which lies “at the heart of the agreement”.[1191] Brennan J described the term there under consideration as “… a promise of such importance to the promisee that it would not have entered into the contract unless it had been assured of substantial performance and this ought to have been apparent to the promisor.”[1192] This formulation drew upon that set out by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd:

“The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor… If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge.”[1193]

[1188](1989) 166 CLR 623 at 642

[1189]Ibid per Deane and Dawson JJ at 658

[1190]Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 per Jordan CJ at 641

[1191]Laurinda op cit per Brennan J at 642

[1192]Ibid at 642

[1193](1938) 38 SR (NSW) 632 at 641-2

Given the grave consequences that may flow from breach, however slight, of a term requiring strict performance, it follows as a matter of commonsense that any such provision should demonstrate its “essential character” from “its own terms”: per Latham CJ in Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd.[1194] In that case the term in question used the phrase “we guarantee”. The Trust submits, and I accept, that where a term states the promisor’s obligations in clear and precise words, it is more likely to be a condition.[1195] This raises the question of what happens when the obligation is expressed in general terms, leaving to the promisor some discretion about the detail of performance.
[1194](1938) 61 CLR 286 at 302
[1195]The Trust’s final submissions, paragraph 472(b)

The Trust says that one of the essential terms was that Command would maintain “critical services” in Nauru House in accordance with applicable legislation and regulations. This term, the Trust submits, “underpinned [the Trust’s] entry into the agreements with Command” since the maintenance agreement was “for the specific purpose of ensuring the safe and continued operation of Nauru House” and, as such, this obligation was “central to achieving that purpose”.[1196] Breach by Command of this condition “substantially deprives [the Trust] of the benefit of the maintenance agreement.”
[1196]The Trust’s final submissions, paragraph 473

I have already found that no such term can be implied.[1197] But the very purpose of the maintenance agreement was to charge Command with the proper maintenance of much of the equipment that is essential for the proper functioning of Nauru House. If the Trust had not been assured of substantial performance by Command of the work necessary to maintain that equipment, it would never have entered into either the maintenance agreement or the CERA. On the other hand, if Command had thought that any failure on its part, however slight, to “perform the [relevant] services…with the diligence and care expected of a professional experienced in providing [those] services…[and] in a good and workmanlike manner”[1198] would amount to an act of repudiation, it likewise would have walked away. The Trust understood this; if it had not, it would not have accepted the inclusion into the maintenance agreement of clause 7.1. It follows that the question for me to answer under this head is whether Command’s delinquencies (ie its breaches of its contractual obligations) were such as to amount to a failure substantially to perform its promises.
[1197]See paragraphs [ ] above
[1198]Maintenance agreement, clause 2.1 (CM.003 at CB.17917)

I am satisfied that, in substance, Command fulfilled its responsibilities. After a thorough and detailed review of the evidence I have come to the conclusion that fire dampers, if taken in isolation, constituted the only exception. But the obligation to maintain this equipment was, in my opinion, not such that Command’s lapses gave rise in the Trust to a right to terminate. Seen in the context of Command’s responsibilities as a whole, the failure to maintain the fire dampers did not result in a failure substantially to perform the duties which Command assumed when the maintenance agreement and the CERA were made. As I have already noted, fire dampers appear to be mentioned in the maintenance agreement as something of an afterthought. The Trust’s attitude towards them suggests that they were not to the forefront of its mind or its concerns at any time before the trial. They then assumed a surprising significance; but this was because they were seen as an issue of forensic advantage. Their lack of contractual significance could not be concealed. I cannot conclude, therefore, that failure to maintain the fire dampers amounted to a breach of a kind which gave rise to an immediate right to terminate.

It was in my opinion an essential term of the maintenance agreement and the CERA that Command would provide the Trust with accurate and timely information about all matters of relevance to the Trust’s position as owner of the building. Command failed to do so. Again, however, this was an essential term which required substantial, not exact, compliance. In my opinion, Command – despite its lapses – substantially fulfilled its obligation to report in an accurate and timely way.

(c) Repeated breaches

While a breach of an essential term may provide the innocent party with an immediate right to terminate the contract, breach of a non-essential term requires the innocent party to show that such conduct amounted to a refusal to be bound by the contract: Associated Newspapers Limited v Bancks.[1199]
[1199](1951) 83 CLR 322 at 339

The non-fraudulent breaches alleged by the Trust (see points (b) and (c) in paragraph [790] above) amount in the end to failures by Command to respond appropriately to the Meinhardt audits. The maintenance agreement does not itself attempt to set time limits or frequencies within which Command should carry out particular works in Nauru House; rather, as an expert in the field of building management, Command was given a wide discretion in matters within its expertise. It is true that, by clause 2.3(d), Command was bound to ensure that its materials, workmanship and methods would, inter alia, comply with all relevant legislation and Australian standards. To that extent the maintenance agreement incorporates by reference such time limits and frequencies for the performance of maintenance work as are there set out. It does not follow that any failure to observe those requirements would necessarily amount to a repudiation of Command’s contractual obligations.

The effect of a contractual stipulation, whether express or implied, that certain things be done within a reasonable time, was explored by Brennan J in Laurinda:

“The difference between a contract which contains a stipulated day for performance of an essential term and a contract which, expressly or impliedly, requires performance within a reasonable time is important when the question is whether, on failure to perform within the time limited by the contract, the innocent party is entitled to rescind. In the former case, a right to rescind arises at law when the stipulated day passes; in the latter, that right does not necessarily arise when the reasonable time expires but only when repudiation is clearly to be inferred from the circumstances in which the delay occurs. Delay will amount to repudiation if the defaulting party ‘evinces an intention no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way’… If the inference to be drawn from the circumstances is that the defaulting party intends to perform an essential promise after some minor delay, repudiation cannot be inferred; but if the inference is that the defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, repudiation can be inferred. The inference is not lightly drawn…”[1200]

[1200]Laurinda op cit at 643

Persistent delay, coupled with failure to comply with a reasonable amount of time provided for by a notice from the innocent party, may not amount to repudiation, but such failure may provide “a firm foundation for an inference of repudiation.”[1201] Brennan J noted that:

“The question whether an inference of repudiation should be drawn merely from continued failure to perform requires an evaluation of the delay from the standpoint of the innocent party. Would a reasonable person in the shoes of the innocent party clearly infer that the other party would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with that party’s obligations and in no other way ?”[1202]

[1201]Ibid at 644

[1202]Ibid at 648

Mere delay in performing a non essential contractual obligation, without more, would not therefore entitle the innocent party to terminate the contract.[1203] So, in Laurinda Pty Ltd v Capalaba Shopping Centre Pty Ltd the conduct of the defaulting party was found to be “not only dilatory but also cavalier and recalcitrant”. It thus amounted to “more than a case of mere delay.”[1204] That case concerned the failure by a shopping centre lessor to register, pursuant to a deed of agreement, a formal lease or to deliver to the lessee a lease in registrable form. The deed of agreement did not specify a time within which the lessor should fulfil these obligations. Nor did it make time of the essence. Despite execution of the lease by the lessee and payment of the relevant registration and stamping fees, together with repeated requests by the lessee’s solicitors for delivery up of the lease, after some nine months delay the lessor had not performed its obligations in respect of formalising the lease arrangements. No explanation was advanced by the lessor for the delay. On the contrary, statements indicating that the lease had been executed were made by the lessor’s solicitors. They were false; execution had not been effected. A letter was sent by the lessee’s solicitors requiring registration of the lease within 14 days, failing which “our clients naturally reserve their rights in respect of your client’s default.” The response “bordered on the contemptuous.”[1205] The lessee treated the failure to respond adequately as a repudiation.
[1203] Ibid at 633
[1204]Ibid at 636-7
[1205]Ibid per Deane and Dawson JJ at 657

Mason CJ found that:

“… although the matter is finely balanced, the unjustified delay on the part of [the lessor] between March and 3 September 1986, accompanied by incorrect statements and unfulfilled assurances sustained the inference of repudiation drawn by Connelly J [the trial Judge]. Based on [the lessor’s] unwillingness to deliver a registrable lease to [the lessee], it seems to me that [the lessor’s] intention was only to perform the contract in a manner substantially inconsistent with its obligations, such as would allow [the lessee] to treat [the lessor] as having repudiated the contract.”[1206]

[1206]Ibid at 636-7

One of the issues that was considered by the Court in Laurinda was the adequacy of both the notice given by the lessee’s solicitors and the time allowed for performance. The notice was said to comprise the letter giving 14 days for performance failing which “our clients naturally reserve their rights in respect of your client’s default”. Mason CJ noted that: “In judging whether the time allowed was reasonable the Court must consider all the circumstances of the case, including any unnecessary delay on the part of the party to whom the notice is given before it is given.”[1207] The onus for showing that the time allowed was reasonable rests on the party who gave the notice.[1208] The question is one of fact to be determined on the evidence.[1209] In Laurinda the evidence was that the time available was not sufficient to enable the lease to be stamped and lodged for registration.
[1207]Ibid at 638
[1208]Ibid at 640 and at 647
[1209]Ibid at 640

The Trust submits that Command was “put on clear notice” that its performance under the maintenance agreement “had not been up to standard for some years and that compliance with its obligations under [that agreement] … was required by [the Trust] in the time frame provided by Command’s response”[1210] to the Meinhardt audit reports. That notice was said to constitute a letter sent by the Trust to Command on 26 August 1997 which enclosed the two Meinhardt audit reports and then stated:
[1210]The Trust’s final submissions, paragraph 456

“These audits identify issues of serious concern to the Trust. In particular, we note that the audits show that in a number of areas Command has failed to comply with the requirements set out in the [maintenance agreement] and CERA contracts. For example, we note that in breach of clause 3.2 of the [maintenance agreement] Command has failed to keep maintenance records of a number of essential services in the building as is required under the Building Regulations (Vic) 1994. This exposes the Trust to penalties under the Building Regulations and if the essential services have not been properly maintained the risk of liability if those services fail to perform in an emergency.
Due to the serious nature of the deficiencies noted in the audits and in accordance with the agreement reached at the meeting on 25^th August 1997, we require you to produce a programme of works necessary to rectify the deficiencies to be reviewed by the Trust at the meeting of 1^st September 1997. The programme must set out in detail how you will deal with the deficiencies raised in both audits.
Once these programmes are accepted by the Trust, the Trust requires that the issues raised in these audits be dealt within [sic] the case of the Essential Services Audit, within 30 days from acceptance of the programme and, in the case of the general audit within 60 days of the acceptance of that programme.
Should:
(a)the programme presented at the meeting of 1^st September 1997 not be adequate, or;
(b)the deficiencies in the audits not be resolved to the satisfaction of the Trust in the time frame noted above or such other times as are agreed to by the Trust,

Then the Trust will have no other choice but to look to its remedies under clauses 7.1 of the [maintenance agreement].”[1211]

[1211]CM.071.033

There has been some debate in the authorities about whether any notice given by the innocent party setting a time for performance should make it clear that, if the defaulting party fails to fulfil its obligations within the time set out, the innocent party will regard the contract as at end. As I have noted in paragraph [ ] above, the letter of 26 August 1997 does not in my opinion constitute “notice” under clause 7 of the maintenance agreement. Nor do I think that by its terms it could be characterised as a “notice” disobedience to which would amount to repudiation. The letter says that the Trust would “look to its remedies under clauses [sic] 7.1 of the [maintenance agreement].”[1212] Clause 7.1 makes provision for the Trust to serve a notice “specifying the default and stating the intention of the [Trust] to terminate [the] agreement.”[1213] Command is then given, in the case of delay in performance, seven days to either cease or rectify the default and take “all reasonable steps to satisfy the [Trust] that the default will be rectified or cease without further delay to the performance of the services…”.[1214] The Trust did not serve such a notice and provide Command with the time set out. This is consistent with the fact that the limitations of time mentioned in the Trust’s letter were not adopted by the parties; instead, Command undertook, and the Trust’s representatives on its behalf accepted, the time limits set out in the Command schedule of works (see paragraphs [ ] above). Moreover, the dates stipulated for completion of the various works were expressed to be “Target Completion Dates” (emphasis added). At the initial meeting between Command and the Trust’s representatives to discuss the audit reports, Hinds Blunden noted that:

“…they understood that [the start and end dates for the rectification works] may well change at a latter [sic] date however an initial guide and commitment from Command was required in the first instance.”[1215]

[1212]CM.071.033 at CB.12865

[1213]Clause 7.1(a) of the maintenance agreement (CM.003 at CB.17926)

[1214]Ibid, clause 7.1(b) (CM.003 at CB.17926)

[1215]NT.100.005 at CB.18731

The evidence called by the Trust from Messrs Butler, Watts and Brown suggests that a period of three months was insufficient within which properly to service the fire dampers in accordance with the Standard. This would be particularly so where time was lost attempting to obtain any existing register of plant and then, when those attempts proved unsuccessful, creating such a document afresh.

In my opinion the Trust was not entitled to terminate the contracts for alleged repeated breaches of the maintenance agreement by Command. I am satisfied that a great deal of work was performed by Command in response to the 1997 Meinhardt audits. As I have noted above, however, there were some instances where Command did not comply with its self-imposed time limits (expressed to be target completion dates). These included the maintenance of fire dampers and the implementation of the MP5 system. Nonetheless I am persuaded that Command had taken steps to address these issues and, but for the termination of its contract on 16 January 1998, would have completed, with sufficient expedition, what had to be done. There is no evidence that Command was “cavalier and recalcitrant”.

Finally, I do not think that the Trust can characterise Command’s failure to maintain the fire dampers as a “repeated” breach in circumstances where the only demand from the Trust for performance in respect of this item arose as a result of the August 1997 Meinhardt audits. Neither the draft Meinhardt audit in 1994 nor the 1995 audit mention failure to maintain fire dampers. I have already observed that fire dampers appeared to be something of an overlooked item for all concerned.

In these circumstances, there is not, to repeat the words of Brennan J in Laurinda, “a firm foundation for an inference of repudiation.” Accordingly, I find that the Trust cannot succeed on this part of its claim.

(d) Conclusion

I have, for the reasons set out above, come to the following conclusions. First, the Trust has not proved that Command is guilty of misleading and deceptive conduct in breach of either the Trade Practices Act or the Fair Trading Act. Secondly, although Command did not comply in every respect with the terms of the maintenance agreement and the CERA, the Trust has failed to prove on the balance of probabilities that any breach by Command of its contractual obligations, whether that breach is taken by itself or cumulatively with all the others, amounted to a repudiation on the part of Command of those obligations. It follows that, in my opinion, the Trust was not justified in terminating either the maintenance agreement or the CERA.

It follows that there must be judgment for Command in its action for damages against the Trust. Such damages await assessment in a separate trial.

---

CERTIFICATE

I certify that this and the 330 preceding pages are a true copy of the reasons for judgment of Harper J of the Supreme Court of Victoria delivered on 17 July 2003.
DATED this 17th day of July 2003.

S Loo
Associate