Commissioner for Main Roads v Reed and Stuart Pty Ltd

[1974] HCA 53

HIGH COURT OF AUSTRALIA

Gibbs, Stephen and Mason JJ.

COMMISSIONER FOR MAIN ROADS v. REED &STUART PTY. LTD.

(1974) 131 CLR 378

29 November 1974

Building Contract

Building Contract—Road construction—Term empowering highway authority's engineer to direct contractor to obtain soil from other approved locations if insufficient soil available on site—Term empowering engineer to direct omission of any work from specification—Whether engineer entitled to direct contractor not to bring in topsoil and to arrange for it to be brought in by third party.

Decisions

Nov, 29.
The following written judgments were delivered:-
GIBBS J. I have had the advantage of reading the reasons for judgment prepared by my brother Stephen and, with the reservations which I am about to state, am in agreement with them. (at p379)

2. For my own part I should not have thought it necessary to vary the declaration made by Taylor J. As my brother Stephen has shown, the first respondent was entitled under the contract to place all the topsoil as shown in the contract drawings, unless the engineer required the omission of any of that work under cl. 18 of the general conditions. In the absence of a requirement by the engineer under cl. 18, it was a breach of the contract for the appellant to render it impossible for the respondent to do the work. The appellant did render it impossible for the respondent to do the work, and thereby committed a breach, by getting someone else to do the work and also by failing to give the direction under cl. B3.03 of the specification without which the respondent could not do the work. The declaration made by Taylor J. and that suggested by my brother Stephen describe in alternative ways what in my opinion amounts to one breach, but nothing, I would think, turns on this difference of form. (at p379)

3. I would wish to express no opinion as to the measure of damages since that question remains to be litigated in the Supreme Court. (at p379)

4. I agree that the appeal should be dismissed. (at p379)

STEPHEN J. This is an appeal from the judgment and order of the Supreme Court of New South Wales, Commercial Court, Taylor J. It concerns the construction of contract documents governing engineering works carried out for the appellant by the first respondent, the contractor, and the second respondent, its sub-contractor, and involving part of the work of construction of the Warringah Expressway, at the northern approach to the Sydney Harbour Bridge. (at p380)

2. The contract documents consisted of a deed which incorporated by reference a variety of other documents including drawings, specification, general conditions of contract and a tender, which in turn incorporated certain conditions of tendering. The contract was for a bulk or lump sum. (at p380)

3. A dispute having arisen concerning the rights and obligations of the parties under this contract the contractor, by summons, sought the making of three specific declarations, the first of which was confined to a question of construction. In the outcome his Honour did not go beyond a consideration of this first declaration but made that declaration in the terms sought by the contractor. From his Honour's decision the Commissioner now appeals. (at p380)

4. The declaration is in the following terms:
"That on the true construction of the contract comprised in the documents referred to in the affidavit of John Ingram Muirhead sworn the ninth day of November 1973 and filed herein, and in the events which have happened, the Defendant was in breach of the said contract by obtaining from a contractor other than the Plaintiffs the supply haul spread and placing of topsoil necessary to make up the deficiency between topsoil yielded from the site of the works the subject of the said contract and the total amount of topsoil required for such works." (at p380)

5. The dispute between the parties arose because the quantity of topsoil required to form the final layer of material on embankments and elsewhere on the site where it was intended to undertake seeding and planting proved greatly to exceed the amount of topsoil in fact available on the site of the works which met the description of topsoil in the specification. The site only yielded some 25,000 cubic yards of topsoil whereas it had been estimated that some 49,700 cubic yards would be required and the position was aggravated when it was later discovered that this estimate was in any event in error, a total considerably in excess of 60,000 cubic yards being in fact required so as to accord with contract drawings. (at p380)

6. This shortfall of topsoil available on the site can scarcely have come as a complete surprise to the Commissioner; by the form of contract documents which he had had prepared, and on the basis of which he required intending contractors to tender for the contract. express provision was made for such an eventuality. A schedule describing the various items of work to be undertaken, with quantities, rates and amounts in blank, formed part of the tender documents and tenderers were required to complete these blanks. Appearing as item B3(c) in that schedule were the two following items relating to topsoil:

Item Nos. Description

of work Quantities Units Rates Amounts

B3(a) . . . . . . (b) . . . . . .
(c) Topsoil, placing

only 49,700 cu.yd. 15.0 37,275.0.0 Supply, haul and
spread Topsoil Schedule rate only cu.yd. 3.0.0 - (pounds)

To understand the effect of the second of these two items it is necessary to go to cl. B3.03 of the specification; the fourth paragraph of that clause is devoted to this very question of a shortfall of on-site topsoil; it reads:

"If sufficient topsoil to meet the requirements of the Works cannot be obtained within the right-of-way, the Engineer may direct the Contractor in writing to obtain topsoil from other approved locations. The excavation and removal of topsoil from such locations shall be under the direction of the Engineer. Payment for such additional topsoil per ton will be made at the scheduled rate, and such price shall include the excavation or stripping of topsoil, loading and cartage of up to three (3) miles from source of supply to point of delivery and placement on the surface to be topsoiled".

The scheduled rate there referred to is the rate of 3 pounds appearing in the second of the two items which I have extracted from the schedule to the tender. Unlike all other items in the schedule, this item consists of a rate only, not applied to any particular quantity and hence incapable of being extended as a money sum in the "amounts" column. Whereas the total of the various sums appearing in that column of the schedule was required, by the conditions of tender, to equal the lump sum price tendered, the rate of 3 pounds per cubic yard necessarily did not play any part in that total. Thus if it became necessary to apply that rate the consequence would be that the contractor would become entitled to an amount over and above the lump sum price at which it had tendered. (at p381)

7. The interaction of two factors, the shortage of on-site topsoil and the underestimation of the total amount of material required to carry out all necessary topsoiling, necessarily produced, in the case of a contract such as the present, an acute conflict between the interests of the respective parties to it. The underestimation meant that the contractor had, for the same lump sum reward, to perform considerably more topsoiling than was contemplated when tendering; but if, because of the shortage of on-site topsoil, it could invoke the fourth paragraph of cl. B3.03 the entire financial position would alter, it would then be paid, at what was apparently a profitable rate, for all imported topsoil needed to make good that shortage and this regardless of the initial underestimation. (at p382)

8. When the shortfall of topsoil manifested itself the contractor sought to, but the Commissioner refused to, invoke those provisions of the contract which were designed to deal with that eventuality; instead the Commissioner adopted a quite different course. The Commissioner's engineer decided that, rather than incur the rate of 3 pounds per cubic yard, he would instead, by the exercise of what he regarded as powers available to him under the contract, arrange for the work of importing topsoil on to the site to be done by a third party, no doubt at cheaper rates. (at p382)

9. Were he legally entitled to do so it would, I think, run counter to a concept basic to the contract, namely that the contractor, as successful tenderer, should have the opportunity of performing the whole of the contract work. By the contract the contractor had covenanted that for the bulk sum of almost 5 million pounds it would perform the works and supply all the materials shown in the other contract documents. That this included the placing of all topsoil called for by the contract drawings is clear from those drawings, from the definition of "Works" in the general conditions of contract and from the concluding words of cl. A1.22 of the specification, which expressly includes in the contract work the placing of topsoil as shown in the contract drawings. Consistently with this the second paragraph of cl. B3.03 provides that topsoil shall be placed by the contractor "on batters, medians and at other locations shown on the Drawings or as determined by the Engineer,...." Then the third paragraph of cl. B3.03 gives meaning to the figure of 49,700 cubic yards of topsoil appearing in the schedule to the tender by describing it as the estimated quantity of topsoil required in place within the limits of the completed works. Finally, to meet the contingency of a shortfall in on-site topsoil, there appears the fourth paragraph of cl. B3.03, which I have already set out in full. (at p382)

10. The engineer sought to rely upon two provisions of the contract to attain his purpose. He regarded the fourth paragraph of cl. B3.03 as conferring upon him, or rather, in his own words, upon "the Department", an option and initially told the contractor that in exercise of that option separate arrangements would be made for the supply of the shortfall of topsoil. He at the same time told the contractor that the Department would "relieve your company of the responsibility of undertaking any further part of the work required under clause B3.03 of the Specification" and that a deduction from the lump sum price would be made, at the rate of 15s. per cubic yard, in respect of the difference between the quantity of on-site topsoil already spread and the quantity, as estimated at time of tender, of 49,700 cubic yards; he relid upon cl. 18 of the general conditions of contract for this action. (at p383)

11. Clause 18 is a common enough provision to be found in engineering contracts and permits of the omission from time to time by the proprietor of portion of the contract works. What it clearly enough does not permit is the taking away of portion of the contract work from the contractor so that the proprietor may have it performed by some other contractor (Carr v. J.A. Berriman Pty. Ltd. (1953) 89 CLR 327 ). Yet this was what the engineer sought to do in the present case in relation to spreading of topsoil. (at p383)

12. The engineer was, in my view, equally mistaken in regarding the fourth paragraph of cl. B3.03 as conferring on him the option of having the work of importing topsoil on to the site performed either by the contractor or by a third party. The only choice which that paragraph leaves open to the engineer in the event of a shortfall of on-site topsoil is between directing the contractor to obtain it elsewhere, cart it to the site and there undertake its placement, all for the agreed rate of 3 pounds per cubic yard, and, on the other hand, abstaining from any exercise of his power of direction but instead electing under cl. 18, the omissions clause, to omit so much of the work of topsoil placement as may be necessary due to the deficiency of on-site topsoil. The fact that the engineer is to this extent free to give or withhold a direction under this paragraph no doubt accounts for its use of the word "may". In my opinion it is in this sense, but in this sense only, that any option is conferred upon the engineer by this paragraph. (at p383)

13. Before dealing further with my reasons for this conclusion I should make brief mention of subsequent events. Having initially informed the contractor in the above terms, the engineer later somewhat modified his stance; he maintained his right to employ a third party to ring the necessary quantities of topsoil on to the site ready for spreading but offered to permit the contractor to undertake placement of all topsoil on the site, the contractor thereby avoiding the penalty of any deduction from the lump sum price although gaining no entitlement to any part of the rate of 3 pounds per cubic yard. This offer the contractor rejected, adhering to its contention that if imported topsoil were to be brought on to the site this should be done by it and it should be remunerated at the tendered rate of 3 pounds per cubic yard. (at p383)

14. It may be noted in passing that this proposal by the engineer would have involved a radical departure from the contract not merely by the introduction of a third party but also because of the proposed division of duties between it and the contractor; the scheduled item for imported, as distinct from on-site, topsoil includes "spread topsoil" and cl. B3.03 refers to its "placement on the surface to be topsoiled"; the earlier item "Topsoil placing only" can, on the construction of the contract which I have adopted, therefore only apply to topsoil won from the site. Thus what was being proposed did not, either for the contractor or for the third party, correspond to any item of the original contract work. (at p384)

15. In the outcome the engineer carried out his initially announced intention and a third party undertook the importing on to the site of additional topsoil and its placement on the site. In doing so the contractor was denied the opportunity of undertaking this work and as a result was responsible for placing only a fraction of the total topsoil required. (at p384)

16. The Commissioner was, in my view, in breach of his contractual obligations under the contract. First there was the failure of the engineer to direct the contractor to obtain additional topsoil from outside the site once it was decided that the contract work of spreading topsoil to the extent shown in the contract drawings should proceed despite the shortfall of on-site topsoil. Secondly, there was the closely allied act of taking away from the contractor the balance of topsoil placement work, using imported topsoil, and, in consequence, the deduction from the lump sum price of an amount calculated by reference to the uncompleted portion of the originally estimated cubic yardage of topsoil required to be placed on site. (at p384)

17. The shortfall having become apparent and it having been decided that all the originally contemplated topsoil spreading should nevertheless be carried out, the engineer, by failing to give a direction under the fourth paragraph of cl. B3.03, rendered it impossible for the contractor to perform its contractual obligations; without such a direction it was confined to the use of on-site topsoil of which there was insufficient. The resultant situation is not dissimilar to that which arose on the facts in Carr v. J. A. Berriman Pty. Ltd. (1953) 89 CLR 327 , where there had been a failure to give possession of the building site to the contractor, this constituting a breach of contract (1953) 89 CLR, at p 348 , and see Freeman &Son v. Hensler (1900) 64 JP 260 , where the members of the Court of Appeal, in separate judgments, each regarded as a term necessarily to be implied into a building contract the giving of possession of the site to the contractor. As Lord Atkin said, in a quite different context, in Southern Foundries 1926 Ltd. v. Shirlaw (1940) AC 701, at p 717 , there is "a positive rule of the law of contract that conduct of either promiser or promisee which can be said to amount to himself 'of his own motion' bringing about the impossibility of performance is in itself a breach". (at p385)

18. It is from this breach on the Commissioner's part that there ensued not only what the present declaration describes as the breach of contract involved in obtaining from a third party the supply and placing of additional topsoil but also the consequence that the contractor was prevented from earning at the rate of 3 pound per cubic yard and was instead penalised by having a deduction made from the lump sum price in respect of topsoil not spread by it. (at p385)

19. In my view the relevant breach of contract consisted of the engineer's failure, in the circumstances, to give a direction under the fourth paragraph of cl. B3.03, thereby rendering it impossible for the contractor to perform that part of its contractual obligations relating to the placement of topsoil. The measure of damages flowing from that breach would no doubt ordinarily be the loss of profits which the contractor has suffered by being denied the opportunity of undertaking the work involved in the scheduled item "Supply haul and spread topsoil". However, the Commissioner clearly cannot be required to pay in full damages calculated on this basis while at the same time being liable for payment of the entire contract lump sum. By such an award of damages the contractor would be as well off as if a direction had been duly given under cl. B3.03 while at the same time retaining its entitlement to the contract lump sum undiminished by deduction of an amount in respect of that portion of the estimated 49,700 cubic yards of topsoil which it did not in fact place on the site. An assessment of an appropriate quantum of damages will no doubt avoid this consequence. However, the assessment of damages forms no part of this appeal. The contractor by its summons sought declarations as to damages but these the learned primary judge stood over to a future date. I have made this passing reference to this topic only because the proposed form of those declarations, as sought in the contractor's summons, may require reconsideration in light of the outcome of this appeal. (at p385)

20. I would dismiss this appeal but would vary the declaration made by describing as the relevant breach of contract on the part of the defendant its failure to give a direction to the contractor pursuant to the fourth paragraph of cl. B3.03 of the specification. (at p385)

MASON J. I have had the advantage of reading the reasons for judgment prepared by Stephen J. I am in agreement with his Honour's reasons and I would dismiss the appeal, varying the declaration made so as to describe as the relevant breach of contract on the part of the defendant its failure to give a direction to the contractor pursuant to the fourth paragraph of cl. B3.03 of the specification. (at p386)

Orders

Appeal dismissed with costs. Order of the Supreme Court of New South Wales (Common Law Division) varied by inserting in lieu of par. 1 thereof the following declaration.
1. That on the true construction of the contract comprised in the documents referred to in the affidavit of John Ingram Muirhead sworn 9th November 1973 and filed herein, and in the events which have happened, the defendant was in breach of the said contract by failing to give a direction to the plaintiff Reed &Stuart Pty. Ltd. pursuant to the fourth paragraph of cl. B3.03 of the specification being one of the plaintiff's exhibits herein.